Form 1042 Checklist: 2021 Tax Year
Purpose of Form 1042
Form 1042 reports annual U.S. source income paid to foreign persons and the corresponding withheld taxes. The 2021 instructions reflect updated withholding rules under the Tax Cuts and
Jobs Act framework.
Withholding agents use this form to report tax withheld under Chapter 3 on income paid to nonresident alien individuals, foreign corporations, foreign trusts, and foreign estates. The form also reports tax withheld under Chapter 4 on withholdable payments to foreign financial institutions and other foreign entities.
Who Must File
Every withholding agent who receives, controls, or pays income subject to withholding must file
Form 1042 for the preceding calendar year. A filing is required if you issue Form 1042-S under
Chapter 3 or Chapter 4, even when no tax was withheld.
Domestic corporations, partnerships, and other United States entities that make payments to foreign persons must comply with these filing requirements. A withholding agent may be an individual, trust, estate, partnership, corporation, nominee, government agency, association, or tax-exempt foundation.
Steps to Complete Form 1042 for 2021
Step 1: Identify Reportable Payments
Identify all reportable payments made to foreign persons during calendar year 2021, including wages, dividends, interest, rents, royalties, pension distributions, scholarships, and fellowships subject to withholding under Chapter 3 rules.
Step 2: Verify Foreign Person Documentation
Verify each foreign person’s tax identification number or individual taxpayer identification number and confirm residency status for income tax treaty purposes. Form W-8BEN, Form
W-8BEN-E, or Form W-8ECI documentation is generally valid for the year signed and the three
succeeding calendar years, unless a change in circumstances makes any information on the form incorrect.
Step 3: Determine Withholding Rates
Determine withholding rates applicable to each income category under the current Chapter 3 withholding framework based on the Internal Revenue Code and applicable treaty provisions.
Step 4: Calculate Withheld Tax Amounts
Calculate withheld tax amounts separately by income classification, such as wages, dividends, and capital gains. The 2021 instructions require line-by-line reporting on Form 1042 before aggregation on Form 1042-S.
Step 5: Complete Part I
Complete Form 1042, Part I, by inserting total amounts for each taxable income category and corresponding withholding for all payments made during the calendar year.
Step 6: Attach Forms 1042-S
Attach Form 1042-S for each foreign person receiving reportable payments. Each form must reflect only income and withholding attributable to that individual during the 2021 calendar year.
Step 7: Complete Part II
Complete Form 1042, Part II, by verifying that the total withholding reported on all Forms
1042-S equals the total withholding entered on Form 1042, Part I, on a line-by-line basis.
- Deposits of $2,000 or more accumulated at the end of any quarter-monthly period must
- Quarter-monthly periods end on the 7th, 15th, 22nd, and last day of each month.
- Deposits of at least $200 but less than $2,000 accumulated at the end of any month
- Undeposited taxes totaling less than $200 at year’s end may be paid with Form 1042 by
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Step 8: Sign and Submit
Sign Form 1042 as the responsible officer and include the preparer’s name if tax return preparation was delegated. The 2021 instructions require a dated signature authority for all submitted returns.
Deposit Requirements and Deadlines
Withholding agents must deposit taxes based on the amount of undeposited taxes accumulated during specific periods. Electronic deposits using the Electronic Federal Tax Payment System are required for all depository tax liabilities.
The deposit schedule varies depending on the total amount of undeposited taxes at the end of each period: be made within three business days after the period ends. must be made within 15 days after the month ends.
March 15 or deposited electronically by that date.
The Form 1042 and Form 1042-S filing deadline remains March 15 of the year following the calendar year in which income was paid. Extensions may be requested using Form 7004, but extensions do not extend the time for payment of tax.
Documentation and Recordkeeping
Documentation retention rules require withholding agents to retain Form W-8 certifications for as long as they are relied upon to determine the withholding agent’s tax liability under Chapters 3 and 4, and for three years thereafter. Proper documentation protects you from penalties and supports your withholding determinations during audits or examinations.
You must maintain complete records of all payments made to foreign persons and the corresponding withholding documentation. Forms W-8BEN, W-8BEN-E, W-8ECI, W-8IMY, and
W-8EXP must be retained according to these standards.
Treaty Benefits and Form 1042-S Reporting
Income reported under treaty benefits must be properly documented with Forms W-8 containing treaty claims. Treaty-reduced withholding must be appropriately reported and segregated when filing Form 1042-S.
Taxpayers claiming treaty benefits may be required to file Form 8833 with their own tax returns, as specified in Section 6114 of the Internal Revenue Code. Withholding agents must obtain valid documentation before applying reduced withholding rates based on treaty provisions.
Form 1042-S guidance for 2021 specifies that box coding must reflect the income category and withholding type applicable under the Tax Cuts and Jobs Act rules. Certain box entries differ from pre-2018 guidance due to the elimination of personal exemptions and adjusted tax rate structures.
Corrections and Amendments
Corrections to previously filed Forms 1042 are made by filing an amended Form 1042 for the applicable year and checking the “Amended Return” box on the form. Complete all sections, incorporating necessary corrections for the relevant calendar year.
Attach any supporting documentation that explains the changes made to the original return. File the amended return at the same address where you filed the original Form 1042.
Ensure that all corresponding Forms 1042-S are also corrected to match the amended information reported on Form 1042. Timely corrections help avoid additional penalties and interest on underwithholding situations.
Additional Resources
Withholding agents should consult Publication 515 for comprehensive guidance on withholding rules applicable to nonresident aliens and foreign entities. Publication 519 provides additional information on the tax treatment of aliens under United States tax law.
These publications contain detailed explanations of income sourcing rules, withholding rates, and documentation requirements. Withholding agents may also reference official tax guidance issued by the Internal Revenue Service for specific situations not addressed in the standard instructions.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
