What Form 1042 (2015) Is For
IRS Form 1042 (2015) is the annual withholding tax return used to report U.S.-source income paid to foreign persons. It summarizes the total income subject to withholding and the tax withheld during the calendar year. The form applies to all types of income paid to nonresident aliens, foreign corporations, foreign partnerships, foreign estates, and foreign trusts.
Any U.S.-based institution, business, or withholding agent that controls or pays income to foreign persons must file this form. This includes payments made to foreign contractors, international students, employees providing personal services, and other entities or individuals who are not U.S. citizens or residents. The form is used to report amounts paid, taxes withheld, and to reconcile the information reported on separate forms such as Form 1042-S.
When You’d Use Form 1042 (2015)
IRS Form 1042 (2015) is used by any withholding agent, business, or United States-based institution that pays U.S. source income subject to withholding to foreign persons during the 2015 tax year. It must be filed by March 15, 2016, or the next business day if a legal holiday applies. This annual withholding tax return reports tax withheld on payments made to nonresident aliens, foreign corporations, foreign partnerships, foreign estates, and foreign trusts. Late filers may request an extension or explain reasonable cause to avoid penalties for willful neglect.
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.
Key Rules or Details for 2015
For 2015, the IRS required all withholding agents to use electronic filing if they submitted 250 or more Forms 1042-S. Chapter 3 and Chapter 4 status codes had to be reported to identify each filer’s role. FATCA rules applied to withholdable payments and required the use of EFTPS for all deposits. These updates ensured that the income of foreign persons, foreign estates, and foreign trusts was reported accurately under U.S. tax laws.
Step-by-Step (High Level)
Step 1: Gather Forms 1042-S and documentation
Collect all Forms 1042-S prepared for each foreign person, including foreign corporations, partnerships, estates, and trusts. Ensure each form includes correct income codes, treaty benefits, and tax withheld amounts for the calendar year.
Step 2: Reconcile payments to foreign persons
Compare all payments made to foreign persons with U.S. source income subject to withholding. Confirm that the amounts reported match deposits and resolve any differences before completing the annual withholding tax return.
Step 3: Complete Section 1 (Record of Federal Tax Liability)
Enter tax liabilities by quarter-monthly periods based on when the income was paid. The total liability should match the payments deposited through EFTPS and reflect the correct tax withholding amounts.
Step 4: Complete Section 2 (Reconciliation of U.S. Source FDAP Income)
Report all income required to be reported under Chapters 3 and 4 and reconcile with the totals from Forms 1042-S. Include both amounts subject to withholding and income that is reportable without withholding.
Step 5: Summarize gross amounts and report tax withheld
Enter the number of Forms 1042-S filed, total gross income paid, and total tax withheld. Review to ensure all figures correspond with the data reported on each separate form issued to recipients.
Step 6: Verify deposits and credits, then calculate net liability
Check that all required tax deposits were made electronically and on time. Apply any credits from prior years or other withholding agents and calculate the net tax liability for the tax year, including withholdable payments.
Step 7: Sign, file, and retain records
Have an authorized withholding agent sign the return under penalties of perjury. File Form 1042 by March 15, or the next business day if the due date falls on a legal holiday, and keep all supporting records for at least three years.
Common Mistakes and How to Avoid Them
Filing errors can lead to penalties, notices, or delays in processing. The most frequent mistakes include the following:
- Omitting required status codes: Each withholding agent must enter the correct Chapter 3 and Chapter 4 status codes to accurately identify their withholding status.
- Reporting Mismatched Totals: Ensure that the totals on Form 1042 reconcile with those on all attached Forms 1042-S to prevent IRS notices or audit inquiries.
- Making late or improper deposits: Follow the quarter-monthly deposit schedule, and use EFTPS for all payments once the total tax reaches $2,000.
- Incorrectly adjusting for overwithholding: Use the reimbursement procedure for overwithheld tax and record the adjustment in the proper reporting period.
Withholding agents should review all entries, confirm income codes, reconcile totals across forms, and ensure every payment to foreign persons is accurately reported.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
Once the annual withholding tax return is filed, the IRS reviews reported amounts and payments made to foreign persons for accuracy. If the tax withheld matches deposits and information returns, processing usually completes within several months. Refunds or credits may be issued, but discrepancies could result in notices or interest charges under federal tax laws.
FAQs
Who must file IRS Form 1042 (2015)?
IRS Form 1042 (2015) must be filed by any withholding agent, business, or United States-based institution that pays U.S. source income subject to withholding to foreign persons, foreign corporations, foreign partnerships, foreign estates, or foreign trusts during the calendar year.
What is the main difference between Form 1042 and Form 1042-S?
Form 1042 is an annual withholding tax return used to report tax withheld and total amounts paid to foreign persons, while Form 1042-S is a separate form issued for each recipient to report specific payments and income subject to withholding.
Can Form 1042 be filed electronically?
Yes, filing information returns electronically is required for withholding agents who file 250 or more Forms 1042-S or who are foreign corporations or financial institutions. Electronic filing ensures the timely processing of the annual withholding tax return and reduces the likelihood of errors in reporting.
How does a tax treaty affect income tax withholding?
A tax treaty may reduce or eliminate tax withholding for payments made to a foreign person. If proper documentation, such as Form W-8BEN, is provided, the withholding agent may apply treaty benefits to income paid, based on individual circumstances and tax laws.
What happens if Form 1042 is filed after the due date?
If Form 1042 is filed after the March 15 due date without reasonable cause, the IRS may impose penalties for willful neglect. Late filers should submit the return immediately, pay any outstanding tax withheld, and request relief if a legal holiday delayed filing.
Are international students and nonresident aliens subject to withholding?
Yes, certain income received by international students and nonresident aliens, such as scholarships or payments for personal services, may be subject to income tax withholding. The amount withheld depends on income codes, tax treaties, and the nature of the payment made to foreign persons.
Why should a withholding agent consult a tax professional?
A tax professional can help withholding agents understand complex reporting requirements, income codes, and filing deadlines for payments made to foreign persons. Professional guidance ensures accuracy when reporting tax withheld and compliance with all IRS tax forms and U.S. tax laws.
For more resources on filing or understanding prior-year IRS forms, visit our Form Summaries and Guides Library or see our IRS assistance guide.
