Form 1042-S (2018)
Purpose and Scope
Form 1042-S reports U.S.-source income paid to foreign persons subject to Chapter 3 or Chapter 4 withholding during the 2018 tax year. Withholding agents must identify whether Chapter 3 (nonresident aliens, foreign corporations) or Chapter 4 (FATCA) withholding obligations apply to each payment reported.
The form requires expanded GIIN reporting and accurate status code identification for both chapters. Chapter 3 and Chapter 4 requirements can apply simultaneously to certain payments, which requires withholding agents to determine the primary withholding regime for each transaction.
Completion Requirements for Tax Year 2018
Chapter Indicator and Income Classification
You must enter "3" or "4" in Box 3 based on the primary withholding regime that applies to the payment. When Chapter 4 applies, and the income qualifies for exemption under portfolio interest safe harbor provisions, you must enter the appropriate Chapter 4 exemption codes (13–21) in boxes 4a and 4b.
Income Code 40 identifies other dividend equivalents under IRC section 871(m) and applies to dividend equivalent payments that do not fall under substitute dividend categories reported with codes 34 or 53. Section 871(m) was originally designated as section 871(l) when enacted in 2010, but was redesignated later that same year through statutory amendment.
Artists and athletes earning income require Letter 4492 notification when using Code 43 for central withholding agreement payments, while Code 42 serves as the default reporting code.
Income codes 51–54 apply only when the withholding agent reduced the rate under a treaty without obtaining the recipient's U.S. or foreign TIN per Regulations section 1.1441-6(c)(2).
Recipient Identification and Documentation
- Box 13h (Recipient's GIIN) serves as a mandatory field for all Chapter 4 reporting situations.
- Box 13l requires the recipient's date of birth in YYYYMMDD format when the recipient is an individual.
- Box 13j (LOB code) must contain the appropriate code when treaty benefits are claimed under limitation-on-benefits rules.
- Boxes 13a through 13l provide complete Chapter 3 and Chapter 4 status identification for each recipient.
Exemption Code Application
Exemption Code 23 applies to distributions made by real estate investment trusts to qualified foreign pension funds that qualify for exemption under section 897(l). Section 897(l) became effective on December 18, 2015, through the Protecting Americans from Tax Hikes Act of 2015.
Code 14 (Effectively connected income, Chapter 4) and Code 01 (Effectively connected income, Chapter 3) require the withholding agent to treat income as not subject to withholding only when proper documentation has been provided and verified. The withholding agent bears responsibility for confirming that all exemption claims meet regulatory requirements before applying reduced rates or exemptions.
Escrow Procedure Elections
You must check Box 7b only when federal tax was withheld during 2018 but was not deposited with the IRS because escrow procedures under Regulations sections 1.1471-2(a)(5)(ii) or 1.1441-3(d) applied to the payment. Income Code 50 identifies income previously reported under escrow procedures in a prior calendar year for which the withheld tax is now required to be deposited in the current calendar year.
When you report a payment using Income Code 50, you must not check Box 7b because the deposit obligation has moved to the current reporting period. Payments reported under escrow procedures must appear on separate Forms 1042-S and cannot be combined with non-escrow payments on the same form.
Status Code Designations
Chapter 3 Status Code 08 identifies a partnership other than a Withholding Foreign Partnership, while Code 09 designates a Withholding Foreign Partnership for flow-through reporting purposes. Chapter 4 status codes expanded to include additional FFI categorization updates that became effective for 2018 reporting.
Code 26 (Hybrid entity making treaty claim) applies when the withholding agent receives Form W-8BEN-E claiming treaty rate reduction, and no withholding applies when the treaty claim is properly documented. Territory financial institution codes 03–04 and U.S. branch codes 05–07 distinguish treatment under Chapter 3 regulations in effect for the 2018 tax year.
Withholding Agent and Payer Information
- Box 12e (withholding agent's GIIN) and Box 16c (payer's GIIN) are mandatory for financial institutions and intermediaries subject to Chapter 4 FATCA compliance obligations.
- Boxes 12b and 12c require current status codes that accurately reflect the withholding agent's classification under both Chapter 3 and Chapter 4 regulations.
- Withholding agents must provide complete identification information in Boxes 12a through 12i regardless of whether they are also the payer of the income.
- Payer identification in Boxes 16a through 16e is required when the payer differs from the withholding agent or when an authorized agent files on behalf of the payer.
Intermediary and Flow-Through Reporting
You must check Box 15 for pro-rata basis reporting when you are a qualified intermediary, Withholding Foreign Partnership, or Withholding Foreign Trust reporting multiple income items on a pro-rata allocation basis per Regulations section 1.1441-1(c)(6). Box 15e (intermediary GIIN) and Boxes 15b and 15c (Chapter status codes) must match the information in the FATCA registry or the documentation the intermediary has provided.
Pooled reporting codes 27–32 apply only to qualified intermediaries, qualified securities lenders, withholding foreign partnerships, or withholding foreign trusts that report aggregated payments according to approved pooled reporting procedures. The withholding agent maintains responsibility for ensuring all intermediary information aligns with current documentation on file.
Tax Withholding Reconciliation
Box 11 captures tax amounts paid by the withholding agent for non-withheld amounts, including amounts withheld but not deposited due to escrow procedures or amounts withheld on subsequent distributions from escrowed income. You must not include amounts already reported in Box 7a (federal tax withheld and deposited) when completing Box 11.
Box 10 requires you to combine amounts from Box 7a (federal tax withheld and deposited), Box 8 (tax withheld by other agents), and Box 9 (overwithheld tax repaid per adjustment procedures under Regulations section 1.1441-3(c)) to calculate the total withholding credit. Amounts reported in Box 7b under escrow procedures must not be included in the Box 10 total withholding credit calculation until the tax is actually deposited in a subsequent reporting period.
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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.
