Form 1042-S Checklist: 2015 Tax Year
Purpose
Form 1042-S reports U.S.-source income paid to foreign persons subject to withholding under Chapter 3 and Chapter 4 provisions. Withholding agents use this form to document payments subject to FATCA regulations, which were first introduced to Form 1042-S in 2014. The 2015 form includes updated income codes, expanded status classifications, and enhanced reporting procedures for escrow accounts and pooled reporting arrangements.
Preparation Steps
Step 1: Verify Withholding Agent Information
Complete Box 12a through Box 12e with the withholding agent's EIN, name, and GIIN if applicable. You must enter a GIIN in Box 12e only if you are a participating FFI or registered deemed-compliant FFI making the payment. The GIIN field should be left blank for withholding agents that are not required to obtain GIIN registration under Chapter 4 requirements.
Step 2: Select Income Code
Enter the appropriate two-digit income code in Box 1 based on the payment type. Code 40 applies to dividend equivalents under IRC Section 871(m), which replaced the former Section 871(l) reference on the 2015 form. The withholding agent must classify income accurately to ensure proper tax treatment and recipient reporting.
Step 3: Enter Gross Income and Chapter 3 Exemption Code
Report the gross income amount in Box 2 without reduction for withholding. Enter the applicable exemption code in Box 3a if Chapter 3 withholding does not apply at the standard rate. Code 12 indicates that the payee was subjected to Chapter 4 withholding instead of Chapter 3 withholding.
Step 4: Complete Chapter 4 Status Codes
Identify the recipient's Chapter 4 status using codes in Box 4a and Box 4c. Pooled reporting codes 42 through 49 apply when reporting payments to recalcitrant account holders, nonparticipating FFIs, and U.S. payee pools.
- You must use Code 47 when designating nonparticipating FFI pools.
- You must use Code 48 when designating U.S. payee pools.
- You must use Code 49 when designating QI-recalcitrant pools for general reporting.
Step 5: Document Escrow Procedure Elections
Check the escrow procedure checkbox if you previously reported gross income under the escrow procedure in a prior year and are now depositing the withheld tax in 2015. Use Income Code 50 to report income for which tax was escrowed in a prior year but is being deposited in the current year. This reporting method applies primarily to dormant accounts of recalcitrant account holders maintained by participating FFIs.
Step 6: Report Withholding Totals
Enter federal tax withheld in Box 7, tax withheld by other agents in Box 8, and tax paid by the withholding agent in Box 9. The three amounts must reconcile with the total tax liability for the payment. Beginning in 2015, you must report the name and EIN of the primary withholding agent in Box 14a and Box 14b when another agent withheld the tax.
Step 7: Complete Recipient Identification
Provide complete recipient information in Box 13a through Box 13i. You must enter the recipient's U.S. TIN if available, Chapter 3 status code, Chapter 4 status code, country code, and GIIN when applicable. Enter the recipient's GIIN in Box 13h if the recipient is a participating FFI, registered deemed-compliant FFI, sponsored FFI, direct reporting NFFE, or sponsored direct reporting NFFE, and you are required to collect the GIIN under Chapter 4 documentation requirements.
Step 8: Classify Intermediaries
Complete Box 15a through Box 15i if an intermediary or flow-through entity exists between you and the beneficial owner. Enter the intermediary's EIN, Chapter 3 status code, Chapter 4 status code, name, GIIN, country, and address. Pooled reporting codes 42 through 49 apply when the intermediary provides Chapter 4 withholding rate pool information on the accompanying withholding statement.
Step 9: Verify Status Code Accuracy
Confirm that Chapter 3 status codes in Box 12b, Box 13b, and Box 15b match the documented status of each party. Code 07 applies to U.S. branches treated under the effectively connected income presumption rules. The status codes must align with the withholding certificates and documentary evidence on file.
Step 10: Report State Income Tax
Enter state-level withholding amounts in Box 21 if applicable. Box 22 requires the state tax identification number, and Box 23 requires the two-letter state abbreviation. State withholding requirements vary by jurisdiction, so you must verify current state guidelines before completing these fields.
Step 11: Distribute Copies to Recipients
Provide Copy B to recipients for attachment to Form 1040NR if they file a U.S. tax return. Provide Copy C for federal return filing if applicable, and Copy D for state return filing if state withholding applies. All copies must contain identical information to ensure accurate recipient reconciliation and compliance.
Step 12: Maintain Documentation
Retain all escrow procedure documentation supporting your reporting. If you escrowed tax in 2014 and deposited it in 2015, maintain receipts and correspondence that substantiate the use of Income Code 50. The documentation must remain available for at least three years following the reporting due date.
Key Changes for 2015
- Primary withholding agent reporting became mandatory in Box 14a and Box 14b for amounts withheld by another agent.
- Code 49 was added to the pooled reporting codes to accommodate QI-recalcitrant pool general reporting.
- Income Code 40 notation changed to reference IRC Section 871(m) instead of the former Section 871(l).
- Escrow procedure clarifications allowed reporting of previously escrowed tax using Income Code 50.
- GIIN reporting requirements continued for participating FFIs, registered deemed-compliant FFIs, and other entities required to obtain GIIN registration under Chapter 4.
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.
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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.
