Form 1042-S (2011) Tax Year Checklist
2011 Purpose and Year-Specific Updates
Form 1042-S reports U.S. source income paid to foreign persons subject to withholding. The 2011 version implements amended pro-rata basis reporting rules for flow-through entities and introduces Income Code 40 for dividend equivalents under IRC section 871(l).
Congress enacted section 871(l) through the HIRE Act in March 2010, creating new withholding obligations for substitute payments and dividend equivalent transactions. The IRS redesignated the previous subsection (l) as subsection (m) when adding the new dividend equivalent provisions.
Preparation Steps (2011-Specific)
1. Verify Withholding Agent Status and EIN Assignment (Box 11, Box 14 TIN Options)
Confirm whether the withholding agent holds a standard EIN, Qualified Intermediary (QI) EIN, or other taxpayer identification. The 2011 form permits QI-EIN designation in Box 11 if the agent operates under a QI agreement. Non-QI agents must use their regular EIN only.
2. Classify the Recipient and Assign Correct Recipient Code (Box 13b)
The 2011 instructions provide 21 recipient codes for proper classification. Available codes include 01 through 18, plus codes 20, 21, and 22. Code 18 designates public pension funds, while codes 21 and 22 identify qualified securities lenders under different arrangements.
3. Identify Income Type and Select 2011 Income Code (Box 1)
Select the appropriate code from the 39 income codes available for 2011. Code 40 applies to dividend equivalents under IRC section 871(l) and covers substitute payments that replicate dividend economics.
Codes 38 and 39 remain available for IRC section 877A items relating to certain expatriates. You must confirm that the income source qualifies as a U.S. source under IRC sections 861 through 865.
4. Apply Special Rules for Artists and Athletes
Income directly attributable to an individual's occupation as an artist or athlete requires Income Code 20. When you use Income Code 20, you must select Recipient Code 09 for artist or athlete classification. Recipient Code 09 replaces the standard codes 01 for individual, 02 for corporation, or 03 for partnership classifications.
5. Determine Exemption Code if Tax Rate Is 00.00 (Box 6)
Enter the appropriate exemption code when no withholding applies.
- Code 01 covers effectively connected income.
- Code 05 applies to portfolio interest under IRC section 881(c).
- Code 04 covers treaty-based exemptions.
The 2011 instructions clarify that Codes 06 and 10 for qualified intermediaries and qualified securities lenders supersede the agent's primary withholding obligation only when specific conditions are satisfied.
6. Calculate Gross Income, Net Income, and Tax Rate (Boxes 2, 4, 5)
- You must enter the gross amount in Box 2 before any reductions.
- Box 4 reflects net income after you apply allowable deductions or exemptions specific to the income type.
- Box 5 shows the effective tax rate you applied, such as 30 percent, 15 percent, treaty rate, or 00.00.
- The rate must align with the income code, recipient status, and exemption authority.
The rate must align with the income code, recipient status, and exemption authority.
7. Report Withholding by Multiple Agents (Boxes 7, 8, 9)
- Box 7 reports the federal tax you withheld as this agent.
- Box 8 reports the federal tax that other agents withheld on the same income.
- Box 9 displays total withholding credit as the sum of Boxes 7 and 8.
The 2011 form emphasizes pro-rata allocation for flow-through entity withholding, requiring proportionate share entry when an NQI or flow-through entity appears in Box 17.
8. Complete Withholding Agent Identification (Boxes 11–12)
Box 11 requires the EIN or QI-EIN if applicable. Boxes 12a through 12d require the legal name and complete U.S. address, including street, suite or room number, city, state, and ZIP code. Foreign withholding agents must provide a foreign address in Box 12d using the full country name. The 2011 instructions require the exact legal name as shown on the tax return.
9. Complete Recipient Identification (Boxes 13–16)
- Enter the recipient's legal name or doing-business-as name in Box 13a if applicable.
- Enter the recipient code from the approved list in Box 13b.
- Enter the complete U.S. or foreign address in Boxes 13c through 13e.
- Enter the U.S. TIN (SSN, ITIN, or EIN) in Box 14; leave blank if none exists.
- Enter the foreign tax ID number in Box 15 if available.
- Enter the two-letter country code per the 2011 IRS country code table in Box 16.
10. Identify Flow-Through Entity or NQI (Boxes 17–20)
Enter the entity name in Box 17 when income flows through a partnership, trust, S-corporation, or NQI arrangement. Box 18 requires the country code. Boxes 19a through 19c require the complete address. Box 20 displays the U.S. TIN if available. The 2011 pro-rata basis rules require a separate Form 1042-S for each pass-through partner or beneficiary without aggregation.
11. Report Payer Information if Different From Withholding Agent (Box 21)
Enter the payer's name and TIN in Box 21 when the payer differs from the withholding agent. Financial institutions that withhold on behalf of issuers must list the issuer as the payer. Foreign payers may provide their foreign TIN or leave the field blank.
12. Enter State Income Tax Withheld and State Authority (Boxes 23–25)
Box 23 displays the amount of state income tax withheld if any amount applies. Box 24 shows the payer's state tax identification number.
Box 25 requires the two-letter state abbreviation or remains blank when no state withholding applies. The 2011 form does not require state withholding but accommodates reporting when state law requires withholding or when the agent withholds state tax.
13. Assemble Multiple Copies and Verify Consistency Across Recipient Codes
Prepare Copy A for IRS submission, Copy B for recipient delivery, Copy C for federal return attachment, Copy D for state return attachment, and Copy E for withholding agent retention. All copies must display identical income, withholding, and recipient data. Cross-reference Box 1 income code with Box 13b recipient code to confirm valid pairing per the 2011 Explanation of Codes table.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
