Form 1042-S (2011): A Complete Guide for Foreign Recipients of U.S. Income

If you're a foreign person who received money from a U.S. source—such as interest, dividends, royalties, scholarships, compensation for services, or pension payments—the organization that paid you (called the "withholding agent") was required to complete this form and send you copies. The form shows not only how much you were paid, but also how much U.S. tax, if any, was withheld from your payment.

The withholding agent could be a bank, university, corporation, partnership, trust, or any other U.S. entity that controls or disburses payments to foreign persons. These entities must file Form 1042-S with the IRS and provide copies to recipients to document that proper withholding occurred under Chapter 3 of the Internal Revenue Code IRS.gov.

What Form 1042-S Is For

Form 1042-S, "Foreign Person's U.S. Source Income Subject to Withholding," is an information return that reports income paid to foreign persons from U.S. sources during the 2011 calendar year. Think of it as the international equivalent of a Form 1099 or W-2, but specifically designed for people and entities that aren't U.S. citizens or residents.

Form 1042-S works hand-in-hand with Form 1042 (the withholding agent's annual return). If Form 1042 is like the "cover sheet" that summarizes withholding activity, Form 1042-S is the recipient-level detail for foreign payees.

When You’d Use Form 1042-S (Late and Amended Filings)

Original Filing Deadline

For income paid during 2011, withholding agents had to file Form 1042-S with the IRS by March 15, 2012. They also had to furnish copies to recipients by the same date. This deadline applies whether filing on paper or electronically.

Extension Requests

Withholding agents who needed more time could request an automatic 30-day extension by filing Form 8809, "Application for Extension of Time to File Information Returns," before the March 15 deadline. If additional time was needed, a second Form 8809 could be submitted before the initial extension expired. However, if requesting extensions for more than 10 withholding agents or 10 or more payers, the requests had to be submitted electronically.

Amended Returns

If errors were discovered after filing, withholding agents needed to file an amended Form 1042-S. They would check the "AMENDED" box at the top of the form and provide corrected information. Importantly, the 250-or-more electronic filing requirement applied separately to original and amended returns. For example, if you filed 300 original forms electronically but only needed to correct 200 of them, those 200 amended forms could be filed on paper since they fell below the 250-form threshold.

Recipients should also furnish amended copies to the income recipients so they can correct their own tax returns if necessary IRS.gov.

Key Rules or Details for 2011

Electronic Filing Requirement

Any withholding agent required to file 250 or more Forms 1042-S had to submit them electronically using the IRS Filing Information Returns Electronically (FIRE) System. This requirement applied separately to each reporting entity (identified by its taxpayer identification number) and separately to original versus amended returns. Electronic filers were responsible for checking their transmission status within 5 business days, as the IRS would not mail error reports for files that failed.

New for 2011

The tax year brought several changes. New income code 41 was introduced for amounts paid for guarantees of indebtedness issued after September 27, 2010. Income code 40 was added for U.S.-source dividend equivalent payments (other than substitute dividends or notional principal contract income). The IRS also increased penalties for failure to file or provide correct and complete Forms 1042-S.

Multiple Form Requirements

A separate Form 1042-S was required for each recipient, each type of income paid to that recipient, and each tax rate applied to a specific type of income. For example, if you paid one foreign person both interest and dividends, you needed two separate forms—one for each income type.

Withholding Rates

The standard withholding rate was 30% of the gross income paid, unless a lower rate applied due to a tax treaty between the United States and the recipient's country, or an exemption under the Internal Revenue Code applied (such as for effectively connected income or portfolio interest).

Record Retention

Withholding agents had to retain copies of filed Forms 1042-S or be able to reconstruct the data for at least 3 years after the reporting due date IRS.gov.

Step-by-Step (High Level)

Step 1: Payment and Withholding

Throughout 2011, when a U.S. entity paid qualifying income to a foreign person, it determined the appropriate withholding rate based on documentation provided by the recipient (typically Form W-8 series). The withholding agent withheld the required tax amount and remitted it to the IRS through federal tax deposits.

Step 2: Form Preparation

After year-end, the withholding agent completed Form 1042-S for each reportable payment. The form included key information: income code (identifying the type of income), gross income amount, withholding rate, federal tax withheld, recipient details (name, address, country, tax identification numbers), and the withholding agent's information.

Step 3: Filing with IRS

Paper Forms 1042-S were sent to the IRS with Form 1042-T (Annual Summary and Transmittal of Forms 1042-S) by March 15, 2012. Electronic filers submitted through the FIRE System by the same date. The withholding agent also filed Form 1042 (Annual Withholding Tax Return) to summarize all withholding activity.

Step 4: Recipient Copies

By March 15, 2012, the withholding agent furnished copies to recipients—Copy B for the recipient's records, Copy C to attach to their U.S. tax return (if required), and Copy D for any state tax return filing.

Step 5: Recipient's Use

Foreign recipients used Form 1042-S to prepare their U.S. tax returns if required, claim refunds of over-withheld taxes, or report the income in their home country (often claiming foreign tax credits for U.S. taxes paid) IRS.gov.

Common Mistakes and How to Avoid Them

Mistake #1: Reporting Multiple Recipients on One Form

A common error was completing Form 1042-S with two or more recipients listed in box 13a (recipient's name). Each form must report only one recipient. If joint owners received a payment, separate forms were required for each owner's proportionate share.

Mistake #2: Combining Multiple Income Types

Copy A (filed with the IRS) could never contain more than one income type. Each income code required a separate form. While substitute recipient copies (B, C, D) could combine income types to reduce paperwork for recipients, the IRS copy had to show only one income type per form.

Mistake #3: Incorrect or Missing Tax Identification Numbers (TINs)

Failing to obtain and accurately report the recipient's U.S. TIN (if any) or foreign tax identifying number led to processing delays and potential penalties. Withholding agents should request proper documentation (Form W-8) before making payments.

Mistake #4: Failing to File Amended Forms

When withholding agents discovered errors but didn't file amended returns, recipients had incorrect information for their tax returns. Always check the "AMENDED" box and provide corrected information promptly.

Mistake #5: Not Providing Recipient Copies

Some withholding agents filed with the IRS but failed to furnish copies to recipients by the March 15 deadline. Both requirements were mandatory and carried separate penalties.

Mistake #6: Using the Wrong Year's Form

The instructions specifically cautioned to use the 2011 Form 1042-S only for income paid during 2011—not for income paid in 2010 or 2012 IRS.gov.

What Happens After You File

For Withholding Agents

After filing Form 1042-S (along with Forms 1042 and 1042-T), the IRS processed the returns to ensure proper tax withholding occurred. If errors were detected, the IRS might send correction requests or assessment notices. Withholding agents remained liable for any under-withheld amounts plus interest and potential penalties. The IRS could audit withholding compliance for up to 3 years (longer in cases of fraud or substantial errors).

For Recipients

Foreign persons who received Form 1042-S needed to determine their U.S. tax filing obligations. Generally, if your tax liability was fully satisfied by withholding and you weren't engaged in a U.S. trade or business, you didn't need to file a U.S. tax return. However, you should file if:

You had effectively connected income from a U.S. business
You wanted to claim a refund of over-withheld taxes
You had income not subject to withholding
You needed to report the income to claim treaty benefits

Nonresident aliens typically filed Form 1040NR (or 1040NR-EZ if eligible), while foreign corporations used Form 1120-F. You could claim credit for taxes withheld as shown on Form 1042-S. If you believed too much tax was withheld, filing a U.S. tax return was the way to request a refund.

Many foreign recipients also needed to report their U.S.-source income in their home country tax returns, often claiming foreign tax credits for U.S. taxes paid to avoid double taxation IRS.gov.

FAQs

Q1: I'm a foreign student who received a scholarship reported on Form 1042-S. Do I need to file a U.S. tax return?

Yes, most likely. Foreign students, teachers, and researchers who received scholarship, fellowship, or compensation income reported on Form 1042-S generally needed to file Form 1040NR or 1040NR-EZ, even if the income was exempt from tax under a tax treaty. Filing allows you to properly report treaty benefits and ensure compliance with U.S. tax laws.

Q2: What if I received Form 1042-S showing taxes were withheld, but I believe I qualified for an exemption?

You should file a U.S. tax return (Form 1040NR) to claim a refund of the withheld taxes. Include Form 1042-S with your return as proof of withholding. Be prepared to provide documentation supporting your exemption claim, such as a tax treaty position statement or proof of effectively connected income.

Q3: The withholding agent didn't provide me with Form 1042-S by March 15. What should I do?

Contact the withholding agent directly and request your copies. They were legally required to furnish Forms 1042-S to recipients by March 15, 2012. If they don't respond, you can still file your U.S. tax return using your own records of income received, and note that you're filing without a Form 1042-S because it wasn't provided.

Q4: I received multiple Forms 1042-S from the same withholding agent. Is this correct?

Yes, this is often correct. Withholding agents must issue separate Forms 1042-S for each type of income, and even for the same income type if different withholding rates applied. Review each form carefully and report all income on your tax return.

Q5: Do I need to report the income from Form 1042-S in my home country?

This depends on your home country's tax laws. Most countries tax their residents on worldwide income, which would include U.S.-source income. However, many countries have tax treaties with the United States that prevent double taxation by allowing foreign tax credits. Consult a tax advisor familiar with both U.S. and your home country's tax laws.

Q6: What's the difference between Form 1042-S and Form 1042?

Form 1042-S is an information return that reports specific payments to individual foreign recipients—similar to how Form 1099 reports to U.S. persons. Form 1042 is the withholding agent's annual tax return that summarizes all withholding activity and payments for the year. Think of Form 1042 as the "cover sheet" that accompanies all the individual Forms 1042-S.

Q7: Can penalties be waived if I missed the filing deadline?

The IRS may waive penalties for reasonable cause, but not automatically. For 2011, penalties ranged from $30 to $100 per form depending on how late the filing was (these were later increased). To request a waiver, you'd need to demonstrate reasonable cause for the delay, such as natural disaster, serious illness, or unavoidable absence. File a written explanation with your late return.

Additional Resources

Form 1042-S Instructions (2011): IRS.gov
Form 1042-S (2011): IRS.gov
Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
Publication 519, U.S. Tax Guide for Aliens
IRS International Section: 267-941-1000 (not toll-free)