What Form 1042 (2013) Is For
IRS Form 1042 (2013) 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 other foreign entities. The form reports income subject to withholding, such as dividends, royalties, interest, personal services, and scholarship or fellowship grants paid to beneficial owners outside the United States.
Withholding agents use Form 1042 to report amounts paid, federal tax withheld, and treaty benefits claimed under applicable tax laws. This filing ensures compliance with Internal Revenue Service requirements for the income of foreign persons. It helps reconcile federal procurement payments, effectively connects income, and reports any taxable income for the tax year.
For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions, see our comprehensive Form 1042 (2013) Instructions: Guide for Withholding Agents.
When You’d Use Form 1042 (2013)
Withholding agents file IRS Form 1042 (2013) to report tax withheld on U.S. source income paid to foreign persons, including foreign corporations, foreign partnerships, and nonresident aliens. This annual withholding tax return applies when income subject to withholding, such as dividends, royalties, or scholarship and fellowship grants, is paid during the tax year. The form must be filed by the due date, even if no tax was withheld, to comply with Internal Revenue Service tax laws.
Key Rules or Details for 2013
For the 2013 tax year, withholding agents were required to make electronic deposits through EFTPS and report the amounts paid on Form 1042-S. Qualified intermediaries, foreign partnerships, and foreign trusts used separate Employer Identification Numbers when filing tax returns. The 2 percent excise tax on specified federal procurement payments paid to foreign contractors also applied, and proper reporting of income codes, federal tax withheld, and treaty benefits was mandatory.
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 Required Documents
Collect all Forms 1042-S for the year, whether paper or electronic. Include records of taxes withheld, taxes deposited, and proof of any overpayments or prior-year credits applied. Have the Employer Identification Number (EIN) or the qualified intermediary’s EIN ready.
Step 2: Complete the Identification Section
Enter the name, address, and EIN of the withholding agent. Indicate whether filing as a qualified intermediary, withholding partnership, or withholding trust. Use the appropriate EIN assigned for that role to ensure accurate reporting of income subject to withholding.
Step 3: Record Federal Tax Liability
Complete lines 1 through 60 to show federal tax liability by period. Report the liability for the time the income was paid, not when the tax was deposited. This ensures that income paid and tax withheld align with the correct reporting period.
Step 4: Reconcile Forms 1042-S
Summarize all Forms 1042-S filed, including total gross income paid, federal tax withheld, and the number of recipient statements. Ensure the amounts reported match across all forms and verify that the totals reconcile accurately with Form 1042.
Step 5: Calculate Net Tax Liability
Add up all period totals and include any adjustments or corrections. This total represents the withholding agent’s complete tax liability for the year. Confirm all calculations reflect the correct amounts paid and tax withheld under U.S. tax laws.
Step 6: Report Payments and Credits
Enter deposits made through EFTPS, any prior-year overpayments, and credits for federal tax withheld by other withholding agents. Attach supporting Forms 1042-S to verify all claimed credits and maintain compliance with IRS reporting requirements.
Step 7: Determine Balance Due or Overpayment
Compare total payments to total liability. If liability exceeds payments, remit the unpaid tax. If overpaid, indicate whether to request a refund or apply it as a credit to the next tax year. Ensure balances reconcile before submission.
Step 8: Report Procurement Excise Tax
If specified federal procurement payments were paid to foreign contractors, calculate and report the 2 percent excise tax under section 5000C. Retain documentation that supports contract amounts and payment records to comply with IRS tax laws.
Step 9: Sign and File the Return
Review all information for accuracy, sign the form, and include a daytime phone number. Mail the completed IRS Form 1042 (2013) to the Ogden Service Center—file electronically for Forms 1042-S using the Filing Information Returns Electronically system.
Common Mistakes and How to Avoid Them
Withholding agents often make preventable errors that delay processing or result in penalties. The most frequent issues include:
- Missing the EFTPS cutoff time: Deposits must be initiated by 8 p.m. Eastern Time the day before the due date to be considered timely.
- Failing to reconcile Form 1042 with all Forms 1042-S: Totals must match across all forms; mismatches can trigger IRS notices or audits.
- Filing paper forms when electronic filing is required: Agents submitting 250 or more Forms 1042-S are required to file electronically to avoid penalties.
- Incorrectly handling over-withholding adjustments: Adjustments cannot be made through amended returns after March 15; instead, the foreign recipient must claim a refund on their U.S. tax return.
- Claiming credits without documentation: Supporting Form 1042-S must be attached to substantiate any claimed credits.
Careful reconciliation, timely electronic filing, and adherence to IRS procedures help withholding agents maintain compliance and avoid costly penalties.
What Happens After You File
After filing IRS Form 1042 (2013), the Internal Revenue Service matches the return with Forms 1042-S to verify the accuracy of tax withheld and income paid to foreign persons. Withholding agents may receive notices for discrepancies or unpaid tax liability. Penalties and interest apply for late filing or payment, unless the delay is due to non-willful neglect. Maintains support for future income tax returns and audits.
FAQs
What is IRS Form 1042 (2013) used for?
IRS Form 1042 (2013) is the annual withholding tax return filed by withholding agents to report tax withheld on U.S. source income of foreign persons, including foreign corporations, foreign partnerships, and nonresident aliens with income subject to withholding.
Who must file Form 1042 for the 2013 tax year?
Any withholding agent, such as a U.S. corporation, financial institution, or partnership, must file Form 1042 if it controls or pays income to foreign persons, foreign estates, or foreign trusts that are subject to U.S. income tax withholding.
What types of income are subject to withholding under Form 1042?
Income subject to withholding includes dividends, interest, royalties, personal services income, and scholarship or fellowship grants. Withholding agents must report amounts paid, tax withheld, and income codes under applicable U.S. tax laws and treaty benefits.
How does a tax treaty affect income tax withholding for foreign persons?
A tax treaty may reduce or eliminate tax withholding on certain income paid to foreign persons. Withholding agents must verify eligibility, apply correct treaty benefits, and properly report tax withheld on income tax returns filed with the Internal Revenue Service.
What happens if a withholding agent files late or underpays tax?
The Internal Revenue Service may assess penalties and interest on unpaid tax or late filings. Withholding agents who fail to file Form 1042 on time without reasonable cause or not willful neglect risk penalties up to 25 percent of tax liability.
