What Form 1042 (2010) Is For
IRS Form 1042 (2010) is the annual withholding tax return used by withholding agents to report tax withheld on U.S. source income paid to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, and foreign estates. The Internal Revenue Service requires this form to summarize income tax withholding and federal tax liability related to certain income subject to U.S. tax laws during the calendar year.
Form 1042 must be filed by any withholding agent responsible for reporting tax withheld on income paid, such as eligible deferred compensation items, scholarship or fellowship grants, or specified federal procurement payments. It also covers withholdable payments made to foreign financial institutions and qualified investment entities. The form works in conjunction with Forms 1042-S and 1042-T to ensure accurate reporting of tax withheld and compliance with IRS tax forms and regulations.
For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions, see our comprehensive Form 1042 (2010) Instructions: Guide for Withholding Agents.
When You’d Use Form 1042 (2010)
Withholding agents use IRS Form 1042 (2010) to file the annual withholding tax return for U.S. source income paid to foreign persons, including nonresident aliens, foreign corporations, and foreign partnerships. It must be filed even if no tax was withheld, covering all income subject to withholding, such as eligible deferred compensation items and specified federal procurement payments paid during the calendar year. The due date is generally March 15 unless it falls on a legal holiday or weekend, in which case the next business day applies.
Key Rules or Details for 2010
For 2010, the Internal Revenue Service required withholding agents to report tax withheld and federal tax liability accurately on Form 1042. Qualified investment entities and foreign trusts followed updated guidance on income tax withholding and source income subject to tax. Withholding agents depositing federal taxes had to follow IRS tax laws, including the use of EFTPS for electronic filing. All reporting amounts paid, taxes deposited, and income paid to foreign persons had to be reconciled with the submitted Forms 1042-S.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide for the Annual Withholding Tax Return for U.S. Source Income.
Step-by-Step (High Level)
Step 1: Gather Your Records
Gather all records of payments made to foreign persons, including Forms W-8BEN, income codes, and documentation of income subject to withholding and tax withheld. These records support accurate reporting and compliance with Internal Revenue Service requirements.
Step 2: Prepare Forms 1042-S
Prepare Form 1042-S for each foreign person or entity receiving payments subject to withholding. Each form must show the income paid, tax withheld, and any treaty benefits claimed under applicable tax laws.
Step 3: Complete Form 1042-T
If filing on paper, complete Form 1042-T to transmit all Forms 1042-S to the IRS. Ensure the totals reported match the income paid and federal tax withheld for the calendar year.
Step 4: Calculate Federal Tax Liability
Calculate the total federal tax liability for the year using the Record of Federal Tax Liability section on Form 1042. Enter each period’s tax withheld to confirm proper reporting of income and tax deposits.
Step 5: Reconcile Income Paid and Tax Withheld
Reconcile all income paid and tax withheld to ensure totals on Form 1042 align with the data reported on all Forms 1042-S. Accurate reconciliation prevents reporting errors and reduces the likelihood of IRS correspondence.
Step 6: Report Total Deposits
Report all federal taxes deposited through EFTPS or another approved system. Verify that the total tax deposited equals the total tax liability reported on the annual withholding tax return.
Step 7: Determine Balance Due or Overpayment
Determine if additional tax is due or if there is an overpayment. Overpayments may be credited toward the next calendar year or refunded, pending approval from the IRS.
Step 8: Sign and Mail Form 1042
Sign and mail the completed Form 1042 to the IRS Ogden Service Center by the due date or the next business day if it falls on a legal holiday. Retain copies and supporting records for at least three years.
Common Mistakes and How to Avoid Them
Many withholding agents make avoidable errors when filing Form 1042. The most frequent issues include:
- Failing to reconcile Forms 1042 and 1042-S: Always ensure totals on Form 1042 match the amounts reported across all Forms 1042-S before submission.
- Using the wrong identification number: Enter the correct QI-EIN, WP-EIN, or WT-EIN rather than a standard Employer Identification Number.
- Missing or late deposits: Review and follow the proper deposit schedule to avoid penalties for late or missed tax payments.
- Filing late or not filing because no tax was withheld: Form 1042 must still be filed even if no tax was withheld during the year.
- Incorrectly adjusting for overwithholding: Make adjustments for overwithheld amounts before the due date; late corrections are not permitted.
Withholding agents can avoid penalties and processing delays by reconciling all payment data, verifying identification numbers, and filing complete, accurate, and timely electronic returns.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After filing IRS Form 1042 (2010), the Internal Revenue Service reviews all reporting tax withheld and payments subject to withholding for accuracy. Penalties may apply for unpaid tax or errors unless reasonable cause and not willful neglect are shown. Overpaid federal tax withheld may be refunded or credited toward the following year’s tax liability.
FAQs
Frequently Asked Questions
What is IRS Form 1042 (2010) used for?
IRS Form 1042 (2010) is the annual withholding tax return used by withholding agents to report tax withheld on certain income of foreign persons. It covers source income subject to withholding, including payments made to nonresident aliens and foreign entities.
Who must file Form 1042?
Any withholding agent, such as U.S. financial institutions, foreign partnerships, corporations, trusts, or estates, must file Form 1042 to report tax withheld from income paid to foreign persons. This includes eligible deferred compensation items and federal procurement payments that have been paid.
How does a tax treaty affect income tax withholding?
A tax treaty may reduce or eliminate tax withholding for certain income of foreign persons. Withholding agents must verify claiming treaty benefits by collecting proper documentation before adjusting tax withheld or reporting tax payments subject to reduced rates.
What are specified federal procurement payments?
Specified federal procurement payments refer to payments made by a government agency to foreign corporations or partnerships for goods or services. These payments are subject to withholding tax and must be reported on the annual withholding tax return.
Can Form 1042 be filed electronically?
Yes, although Form 1042 for 2010 was typically filed on paper, later versions allow electronic filing. Withholding agents and financial institutions must follow IRS tax form instructions and electronic filing requirements for reporting tax withheld.
What happens if Form 1042 is filed late?
If Form 1042 is filed after the due date without reasonable cause, the Internal Revenue Service may assess penalties and interest. Failure to pay tax withheld or deposit federal taxes on time is not considered reasonable cause and may be treated as willful neglect.
Are scholarship or fellowship grants subject to withholding tax?
Yes, scholarship or fellowship grants paid to nonresident alien employees or international students are considered income subject to withholding. The withholding agent must report amounts paid and any tax withheld on the appropriate lines of Form 1042.
