Form 1042: Annual Withholding Tax Return for U.S. Source Income of Foreign Persons (2018)

What Form 1042 Is For

Form 1042 is the annual tax return that “withholding agents” must file to report taxes they withheld from payments made to foreign persons. Think of a withholding agent as any person or business—whether a U.S. company, financial institution, partnership, trust, or even a foreign entity—that controls, pays, or manages money owed to foreigners. When these agents make certain payments to non-U.S. residents (such as interest, dividends, rents, royalties, or wages), they're often required to withhold a portion for U.S. taxes and send it to the IRS.

The form covers taxes withheld under several different parts of the tax code: Chapter 3 withholding (the traditional system for nonresident aliens and foreign entities), Chapter 4 withholding (related to the Foreign Account Tax Compliance Act or FATCA), section 5000C withholding on federal procurement payments to foreign contractors, and special provisions for covered expatriates. Form 1042 essentially acts as a summary document showing how much money was paid to foreign recipients, how much tax was withheld, when deposits were made, and whether the withholding agent owes additional tax or is due a refund.

For the 2018 tax year, the form must also be used by publicly traded partnerships distributing effectively connected income to foreign partners, qualified investment entities withholding under section 1445, and various financial institutions with special IRS agreements. Anyone required to file Form 1042-S (the individual payment statement given to each foreign recipient) must also file Form 1042.

When You’d Use Form 1042

Regular Filing

The standard deadline for Form 1042 for calendar year 2018 was March 15, 2019. If you were a withholding agent who made any reportable payments to foreign persons during 2018, you needed to file by this date. The form should be mailed to:
Internal Revenue Service, P.O. Box 409101, Ogden, UT 84409.

Extension

If you couldn't meet the March deadline, you could request an automatic 6-month extension by filing Form 7004 before the original due date. This would extend your filing deadline to September 15, 2019. However, this extension only gives you more time to file the paperwork—it doesn't extend the time to pay any taxes owed. Any balance due still needed to be deposited or paid by March 15 to avoid penalties.

Amended Returns

If you discovered errors after filing your original Form 1042, you would file an amended return using the same form for 2018. At the top of the form, you'd check the “Amended Return” box, complete the entire form with corrected information, attach a statement explaining what you're changing and why, and sign it.

Importantly, you cannot use an amended Form 1042 to recover taxes you over-withheld in a prior year—recipients would typically need to file their own refund claims unless you're a qualified intermediary or certain financial institution eligible to make collective refund claims.

Key Rules for 2018

Electronic Filing Requirements

If you were a financial institution or filed 250 or more Forms 1042-S, you were required to submit them electronically. Partnerships had to file electronically if they had more than 100 partners or filed 200 or more information returns for tax year 2018.

Deposit Timing

The IRS required deposits throughout the year based on how much you withheld:

If undeposited taxes reached $2,000 or more at the end of any quarter-monthly period (ending on the 7th, 15th, 22nd, or last day of the month), deposit within 3 business days.
If you had between $200 and $1,999 at month-end, you had 15 days to deposit.
Amounts under $200 at year-end could be paid with the form or deposited by March 15, 2019.

EFTPS Mandatory

All deposits had to be made electronically through the Electronic Federal Tax Payment System (EFTPS). Deposits were considered on time only if submitted by 8 p.m. Eastern time the day before the due date. Failing to use EFTPS could result in a 10% penalty.

New for 2018

Added Section 4 for Qualified Derivatives Dealers (QDDs) dealing with dividend equivalent payments.
The centralized partnership audit regime took effect January 1, 2018, changing how partnerships handle withholding on adjusted partnership income.

Who Must File

You must file if you:

Were required to file Forms 1042-S
Paid gross investment income to foreign private foundations
Paid specified federal procurement payments to foreign persons
Paid eligible deferred compensation to covered expatriates
Were a qualified intermediary or financial institution making collective refund claims

Step-by-Step Filing Process (High Level)

Step 1: Gather Your Information

Collect all Forms 1042-S you issued (or will issue) to foreign recipients, your deposit records, and documentation of the recipients' foreign status. You'll need your EIN or, if applicable, QI-EIN, WP-EIN, or WT-EIN.

Step 2: Complete the Header Information

Enter your name, address, and EIN at the top of the form, along with your Chapter 3 and Chapter 4 status codes from the 1042-S instructions. U.S. branches of foreign financial institutions may need to file separately.

Step 3: Complete Section 1 — Record of Federal Tax Liability

Lines 1–60 show your tax liability for each quarter-monthly period. Enter the amount of tax that became due, not what you deposited. Total each month’s liability.

Step 4: Complete Section 2 — Reconciliation

Lines 62a–62c summarize all gross amounts from Forms 1042-S. Line 63 shows total tax withheld or paid. Lines 64–65 reconcile total liability with deposits and adjustments.

Step 5: Calculate Balance Due or Overpayment

Lines 66–71 show whether you owe tax or have an overpayment. Overpayments may be refunded or applied as a credit toward your 2019 liability.

Step 6: Sign and Mail

Sign and date the form. Corporations must have an officer sign. If filing paper 1042-S forms, include Form 1042-T as a transmittal. Mail to the Ogden, Utah address by the due date.

Common Mistakes and How to Avoid Them

Mistake #1: Missing or Incorrect EIN

Use the correct EIN—if you're a QI, WP, or WT, use your special EIN, not your regular one. A GIIN for FATCA does not replace your EIN.

Mistake #2: Confusing Deposits with Liability

Lines 1–60 report when liability was incurred, not when deposits were made. Totals must reconcile with lines 64b–64d.

Mistake #3: Not Filing When Required

You must file Form 1042 if you filed any Forms 1042-S—even if withholding was reduced to zero by treaty or no tax was withheld.

Mistake #4: Failing to Use EFTPS

Deposits by check are not accepted. All deposits must be made via EFTPS. Register early at EFTPS.gov.

Mistake #5: Incorrect Over/Under Withholding Adjustments

After March 15, over-withheld tax cannot be refunded through an amended 1042. The foreign recipient must file a refund claim instead.

Mistake #6: Not Reconciling With Forms 1042-S

Totals on Form 1042 must match all Forms 1042-S. Inconsistencies trigger IRS notices.

Mistake #7: Missing the Chapter 3/4 Split

Always separate Chapter 3 (traditional) and Chapter 4 (FATCA) withholding amounts on lines 64b and 64c.

What Happens After You File

Processing and Matching

The IRS processes the form and matches it with Forms 1042-S and EFTPS deposit records.

If You Owe Money

Balances due after March 15 accrue interest and penalties:

Late payment: 0.5% per month (up to 25%)
Late filing: 5% per month (up to 25%)

If You’re Due a Refund

Refunds can take six months or more. Many choose to apply the overpayment as a credit toward the next year.

If You Made Errors

The IRS may send notices if your deposits or 1042-S totals don’t match. Respond promptly and amend if necessary.

Statute of Limitations

You can claim a credit or refund within 1 year from the original due date (without extensions).

IRS Assistance

For help or notices, call 267-941-1000 (not toll-free) or write to:
IRS International Section, Philadelphia, PA 19255-0725.

FAQs

Q1: I'm a small business that paid a foreign consultant $5,000 in 2018. Do I need to file Form 1042?

Yes. If you withheld tax or were required to report the payment on Form 1042-S, you must file Form 1042—even if withholding was zero due to a treaty.

Q2: What's the difference between Form 1042 and Form 1042-S?

Form 1042-S: The statement given to each foreign recipient (like a W-2).
Form 1042: The summary return filed with the IRS showing total withholding.

Q3: Can I file Form 1042 electronically for 2018?

The 2018 Form 1042 was typically paper-filed. Forms 1042-S could (and often must) be filed electronically through the IRS FIRE system.

Q4: I discovered I over-withheld $1,000 from a foreign contractor in 2018. What do I do?

If discovered before March 15, 2019, you can use the reimbursement procedure and adjust on line 63c(1). After March 15, the contractor must file a refund claim (Form 1040-NR).

Q5: What types of payments require Form 1042 withholding?

“FDAP” payments — Fixed, Determinable, Annual, or Periodical income — including interest, dividends, rents, royalties, and compensation for services. Default rate: 30%, unless reduced by treaty.

Q6: I'm a partnership and missed the March 15 deadline. What penalties will I face?

Late filing: 5% per month (up to 25%)
Late payment: 0.5% per month (up to 25%)
Interest also accrues from March 15. File immediately and request penalty relief if reasonable cause applies.

Q7: Do I need both Chapter 3 and Chapter 4 status codes?

Yes. The IRS requires both, even if you only had payments under one chapter.

Authoritative Source:
Based on the official 2018 Instructions for Form 1042 from the IRS.
See IRS.gov and Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.