What Form 1042 Is For

Form 1042 is the annual tax return that U.S. "withholding agents" must file to report taxes they've withheld from payments made to foreign individuals and entities. Think of it as a year-end summary report that tells the IRS: "Here's how much income I paid to foreign persons, and here's the tax I withheld and sent to you throughout the year."

A "withholding agent" can be any person or entity—whether it's an individual, business, trust, estate, partnership, corporation, or even a government agency—that controls or pays certain types of U.S.-source income to foreign recipients. This might include universities paying foreign professors, companies paying foreign contractors, or investment firms paying dividends to foreign investors.

The form reports several key pieces of information: tax withheld on income paid to foreign persons (like nonresident aliens, foreign corporations, foreign partnerships, foreign estates, and foreign trusts), tax withheld from publicly traded partnerships (PTPs) distributing income to foreign partners under section 1446, and the 2% excise tax on certain federal procurement payments made to foreign persons under section 5000C (for contracts entered into after January 1, 2011, for goods or services from countries without international procurement agreements with the U.S.).

Form 1042 works hand-in-hand with Form 1042-S (Foreign Person's U.S. Source Income Subject to Withholding), which is like a W-2 for foreign recipients—it shows each individual foreign person how much income they received and how much tax was withheld. IRS.gov

When You’d Use Form 1042 (Late Filing and Amended Returns)

Standard Deadline

Form 1042 for the 2012 tax year must be filed by March 15, 2013. If that date falls on a weekend or legal holiday, the deadline extends to the next business day.

Extension Requests

If you need more time to prepare your return, you can request an automatic extension using Form 7004 (Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns). However, this is critically important to understand: an extension to file is NOT an extension to pay. You must still estimate and deposit any taxes owed by the original March 15 deadline to avoid interest charges.

Late Filing

If you miss the deadline and haven't requested an extension, file Form 1042 as soon as possible. The IRS will assess penalties (detailed in Section 5), but filing late is always better than not filing at all.

Amended Returns

If you discover errors after filing your original Form 1042, you must file an amended return. Here's how: Use a fresh Form 1042 for the year you're correcting (in this case, the 2012 form), check the "Amended Return" box at the top, complete the entire form with corrected information, and attach a written statement explaining what you're changing and why (for example, "Filing amended return because May tax liability was incorrectly reported due to mathematical error"). Mail it to the same address as your original return: Ogden Service Center, P.O. Box 409101, Ogden, UT 84409.

Important note: If you also need to correct Forms 1042-S that you issued to foreign recipients, you'll need to file amended Forms 1042-S as well, following the separate procedures outlined in the Form 1042-S instructions. IRS.gov

Key Rules and Requirements for 2012

Who Must File

You must file Form 1042 if you're a withholding agent who was required to file any Forms 1042-S during 2012, regardless of whether you actually withheld any tax. Even if the withholding rate was zero due to a tax treaty, if you had to issue a Form 1042-S, you must file Form 1042.

Electronic Filing Requirements

If you filed 250 or more Forms 1042-S, you are legally required to submit them electronically. However, you can voluntarily choose electronic filing even if you have fewer than 250 forms. Despite electronic filing of Forms 1042-S, you still must file Form 1042 itself (the summary return).

Deposit Requirements

For 2012, all withholding agents were required to use the Electronic Federal Tax Payment System (EFTPS) to deposit withheld taxes. The deposit schedule depends on how much you've accumulated in undeposited taxes:

• $2,000 or more: Deposit within 3 business days after the end of each quarter-monthly period (periods ending on the 7th, 15th, 22nd, and last day of each month)
• $200 to $1,999: Deposit within 15 days after the end of the month
• Less than $200: You may either deposit by March 15, 2013, or pay the amount with your Form 1042

To ensure timely electronic deposits through EFTPS, you must initiate the transaction by 8 p.m. Eastern time the day before the deposit is due. Missing this deadline can result in a 10% penalty for failure to use EFTPS properly.

Consolidation Rule

File only one Form 1042 that consolidates all your Form 1042-S recipient information, regardless of how many different branches, divisions, or income types you handle. However, there's an important exception: if you're acting in multiple capacities (for example, as both a Qualified Intermediary for some accounts and a Non-Qualified Intermediary for others), you must file separate Forms 1042 for each distinct role.

Special Situations

Regulated investment companies (RICs), real estate investment trusts (REITs), and personal holding companies (PHCs) have special rules for dividends declared in October, November, or December of one year but paid early in the following year. These entities must make adjustments on line 63b for such dividends. IRS.gov

Step-by-Step (High Level)

Step 1: Gather Your Documentation

Collect all Forms 1042-S you've prepared for 2012 (whether filed on paper or electronically), copies of your monthly deposit records, and any Forms 1000 (Ownership Certificates) if applicable. You'll need these to reconcile your totals.

Step 2: Complete the Header Information

Enter your name, address, and Employer Identification Number (EIN). If you're a Qualified Intermediary (QI), Withholding Foreign Partnership (WP), or Withholding Foreign Trust (WT), use your special QI-EIN, WP-EIN, or WT-EIN instead of your regular EIN, and check the appropriate box.

Step 3: Fill Out the Record of Federal Tax Liability (Lines 1-60)

This is the heart of the form—a detailed calendar showing your tax liability for each quarter-monthly period throughout 2012. Enter the tax liability (not the deposits) for each period based on when the income was paid or deemed paid. Lines are organized by month with four entries per month corresponding to periods ending on the 7th, 15th, 22nd, and last day of each month.

Step 4: Complete the Summary Information (Lines 61-62)

Line 61: Enter the number of Forms 1042-S you filed (both paper and electronic combined).
Line 62a: Enter the total gross income paid (must equal the sum of all Forms 1042-S, box 2).
Line 62b: Enter the total federal tax withheld (must equal the sum of all Forms 1042-S boxes 7 + 8, minus box 10, plus any tax assumed on Forms 1000).

Step 5: Calculate Your Payments and Balance (Lines 63-70)

Line 63a: Total your tax liability from lines 1-60.
Line 63b: Add any adjustments (such as underwithheld tax on corporate distributions).
Line 63c: Calculate total net tax liability.
Lines 64-66: Enter your total deposits made during 2012, any overpayment from 2011 you applied as a credit, and any amounts withheld by other withholding agents (if you're claiming credit for taxes others withheld on your behalf).
Lines 67-69: Determine if you owe a balance or have an overpayment.
Line 70: If you have an overpayment, indicate whether you want it refunded or credited to your 2013 Form 1042.

Step 6: Sign and Date

The form must be signed under penalty of perjury by someone authorized to sign on behalf of the withholding agent.

Step 7: Submit

Mail your completed Form 1042 to: Ogden Service Center, P.O. Box 409101, Ogden, UT 84409. If you filed Forms 1042-S on paper, you must also submit Form 1042-T (Annual Summary and Transmittal of Forms 1042-S) along with your paper Forms 1042-S. IRS.gov

Common Mistakes and How to Avoid Them

Mistake #1: Missing the Electronic Filing Requirement

Many withholding agents don't realize that if they have 250 or more Forms 1042-S, electronic filing is mandatory, not optional. Failing to file electronically when required can result in penalties.
Solution: Count your Forms 1042-S early in the year. If you're approaching 250, plan ahead to register for electronic filing at least a few weeks before the deadline.

Mistake #2: Reconciliation Errors Between Form 1042 and Forms 1042-S

The most common error is when the totals on Form 1042 don't match the sum of all Forms 1042-S. The IRS will flag these discrepancies immediately, resulting in correspondence and potential audits.
Solution: Before filing, create a spreadsheet that sums all Forms 1042-S. Verify that line 62a equals the total of all Forms 1042-S box 2 amounts, and line 62b equals the total of boxes 7 + 8, minus box 10. Double-check your math.

Mistake #3: Confusing Tax Liability with Tax Deposits

Lines 1-60 ask for your tax liability for each period (when the income was paid), not your tax deposits (when you sent money to the IRS). These dates rarely align perfectly.
Solution: Keep detailed records showing when each payment was made to foreign persons and how much tax was withheld. Report liability based on payment dates, regardless of when you made deposits.

Mistake #4: Using the Wrong EIN

Qualified Intermediaries must use their QI-EIN (not their regular business EIN) on Form 1042. Using the wrong identification number can cause serious processing delays and matching problems.
Solution: If you're a QI, WP, or WT, make sure you've obtained your special identification number before filing. Apply using Form SS-4 submitted to the LB&I International QI Group at their special address (listed in the instructions, not the standard Form SS-4 address).

Mistake #5: Failing to Handle Overwithholding Correctly

Many withholding agents discover they withheld too much tax but don't follow the proper procedures to correct it. Simply filing an amended return isn't always the right approach, especially if you discover the error after March 15 of the following year.
Solution: If you discover overwithholding by March 15, 2013, you can use the "reimbursement procedure" (repay the foreign person with your own funds and reduce your deposits) or the "set-off procedure" (reduce withholding on future payments to that same person). If you discover it after March 15, 2013, the foreign person must file their own U.S. tax return or amended return to claim the refund—you cannot fix it through Form 1042.

Mistake #6: Missing EFTPS Deadlines

Because you must initiate EFTPS deposits by 8 p.m. Eastern time the day before they're due, many people on the West Coast miss deadlines by trying to make same-day payments.
Solution: Set calendar reminders for the day before your deposits are actually due. If you do miss the EFTPS window, you can still make a same-day wire payment through your bank, but you must arrange this capability in advance—it's not automatic. IRS.gov

What Happens After You File

IRS Processing

Once you mail Form 1042 to the Ogden Service Center, the IRS will process your return and match it against the Forms 1042-S you submitted (whether paper or electronic). This matching process can take several months. The IRS checks that your reported totals reconcile with individual Forms 1042-S and that your deposits align with your reported liability.

If You Owe a Balance

If line 68 shows a balance due, you should have paid it by the March 15, 2013 deadline (either with Form 7004 if you filed an extension, or with your Form 1042 if you filed timely). The IRS will send a bill for any unpaid amount plus interest and penalties if applicable.

If You Have an Overpayment

If line 69 shows you overpaid, the IRS will process your refund request (if you checked the "Refund" box on line 70) or apply the credit to your 2013 Form 1042 liability (if you checked "Credit"). Refunds typically take 6-12 weeks to process, though some may take longer if the return requires additional review.

Penalties and Interest

If you filed or paid late without reasonable cause, the IRS will assess penalties and interest automatically. You don't need to calculate these yourself—the IRS will send you a bill. Interest accrues daily on unpaid tax from the due date until paid. Key penalties include:

• Late filing: 5% of unpaid tax per month (or part of month), up to 25% maximum
• Late payment: 0.5% of unpaid tax per month (or part of month), up to 25% maximum
• Failure to use EFTPS: 10% penalty on deposits not made electronically
• Failure to file electronically (if required): Penalties vary based on filing method used

The IRS states clearly in the instructions: "You do not have to figure the amount of any interest or penalties you may owe. Because figuring these amounts can be complicated, we will do it for you if you want. We will send you a bill for any amount due."

IRS Correspondence

If the IRS finds discrepancies or has questions, you'll receive correspondence asking for clarification or corrections. Common issues include reconciliation mismatches, missing Forms 1042-S, or deposit timing questions. Always respond promptly to IRS letters—ignoring them only increases penalties and interest.

Record Retention

Keep copies of your Form 1042, all Forms 1042-S, deposit records, and supporting documentation for at least 4 years from the filing date. The IRS can audit your return during this period, and you'll need these records to substantiate your reporting. IRS.gov

FAQs

Q1: I'm an employer who withheld income tax from my nonresident alien employee's wages. Do I report this on Form 1042?

No. Wage withholding for nonresident alien employees is reported on Form 941 (Employer's Quarterly Federal Tax Return), not Form 1042. Form 1042 is specifically for certain types of U.S.-source income paid to foreign persons—typically investment income, scholarships, royalties, and similar payments—not wages. Similarly, if you withheld from pensions or annuities, use Form 945 (unless the recipient elected not to have withholding, in which case you'd use Forms 1042 and 1042-S).

Q2: What's the difference between a Qualified Intermediary (QI) and a Non-Qualified Intermediary (NQI)?

A Qualified Intermediary is a foreign financial institution or intermediary that has entered into a formal withholding agreement with the IRS, agreeing to assume primary responsibility for withholding and reporting on payments made through their institution. They receive a special QI-EIN and check the "QI" box on Form 1042. A Non-Qualified Intermediary is any foreign intermediary that hasn't entered into such an agreement. This distinction is crucial because it affects who bears primary withholding responsibility and how Forms 1042-S are prepared and allocated.

Q3: I discovered in 2013 that I overwitheld tax on payments I made in 2012. Can I just file an amended Form 1042?

It depends on when you discovered the overwithholding. If you discovered it by March 15, 2013, you can repay the foreign recipient and reduce your reported tax liability to reflect the correct amount. You can use either the "reimbursement procedure" (repay the person directly) or "set-off procedure" (reduce withholding on future payments to that same person). However, if you discover the overwithholding after March 15, 2013, you cannot adjust Form 1042. Instead, the foreign recipient must file a U.S. tax return (Form 1040NR or 1120-F) or amended return to claim a refund of the overwithheld amount.

Q4: I have only 50 Forms 1042-S to file. Can I still submit them electronically, or must I use paper?

You can choose electronic filing even though you're below the 250-form mandatory threshold. In fact, the IRS encourages electronic filing regardless of volume because it's faster, more accurate, and easier to track. Many withholding agents find electronic filing simpler even for small quantities. If you do file on paper, remember to also submit Form 1042-T (Annual Summary and Transmittal of Forms 1042-S) along with your paper Forms 1042-S.

Q5: What if I realize I need an extension but it's already past March 15?

You cannot obtain an extension after the filing deadline has passed. However, you should file Form 1042 as soon as possible to minimize late-filing penalties. The penalty is 5% of the unpaid tax per month (up to 25%), so each month of delay increases your penalty. File immediately and include payment for any balance due. You can attach a statement explaining the delay if you believe you have reasonable cause—the IRS may consider penalty abatement in cases of reasonable cause (such as natural disasters, serious illness, or circumstances beyond your control), though there's no guarantee.

Q6: Do I need to file Form 1042 if I paid foreign persons but didn't withhold any tax because of a treaty exemption?

Yes, if you were required to file Forms 1042-S (which you would be for treaty-exempt income), you must also file Form 1042. Even when the withholding rate is zero due to a tax treaty, the IRS still requires information reporting to track these payments. You'll show the gross payments on line 62a but will have little or no tax liability to report on lines 1-60. This reporting helps the IRS verify that treaty benefits were properly claimed and documented.

Q7: I'm a publicly traded partnership (PTP) making distributions to foreign partners. Are there special rules I need to know?

Yes. PTPs must withhold section 1446 tax on distributions of effectively connected income (ECI) to foreign partners. If you're a nominee holding PTP interests on behalf of foreign partners and receiving distributions on their behalf, you're treated as the withholding agent and must use Form 1042 to report the tax withheld. This is a special rule for PTPs—most partnerships use Form 8804 for section 1446 withholding, but PTPs use Form 1042. The instructions include specific timing rules for reporting distributive shares versus actual distributions to foreign partners.

For More Information:

The complete instructions for Form 1042 and related forms are available at IRS.gov/form1042. You can also refer to Publication 515 (Withholding of Tax on Nonresident Aliens and Foreign Entities) for detailed guidance on withholding requirements. If you need assistance completing Form 1042, call the IRS International Section at 267-941-1000 (6:00 a.m. to 11:00 p.m. Eastern time) or write to: Internal Revenue Service, International Section, Philadelphia, PA 19255-0725.

This guide is based on official IRS Form 1042 instructions and publications for the 2012 tax year. Tax laws are complex and change frequently. This summary is for educational purposes and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.