Form 1042-S (2021): Foreign Person Income Reporting Guide Checklist

2021 Form 1042-S Checklist

Purpose of This Guide

Form 1042-S reports U.S.-source income paid to foreign persons and Chapter 3/Chapter 4 withholding for the 2021 tax year. Withholding agents must file this form to report amounts paid during calendar year 2021 and certify proper withholding under applicable tax law. Every person required to deduct and withhold tax under Chapter 3 or Chapter 4 remains liable for such tax.

Preparation Steps

1. Verify Withholding Agent Chapter 3 and Chapter 4 Status Codes (Boxes 12b/12c)

You must enter both a Chapter 3 and a Chapter 4 status code regardless of the type of payment being made. If the withholding agent is a registered deemed-compliant FFI, confirm correct code selection per updated FATCA guidance. When the status changes mid-year, use the code reflecting the status as of December 31, 2021.

2. Enter Correct Income Code (Box 1) Matching 2021 Code List

• Income Code 40 covers other U.S.-source dividend equivalents under IRC §871(m) that are not substitute dividend payments.
• Income Codes 51–54 apply to actively traded or publicly offered securities when withholding rates are reduced under a treaty without the recipient providing a TIN.
• Code 51 covers interest paid on certain actively traded or publicly offered securities.
• Code 52 covers dividends paid on certain actively traded or publicly offered securities.
• Code 53 covers substitute payments for dividends from certain actively traded or publicly offered securities.
• Code 54 covers substitute payments for interest from certain actively traded or publicly offered securities.

Use these codes only if income qualifies under 2021 regulatory definitions in Regulations Section 1.1441-6(c)(2).

3. Classify Recipient’s Chapter 3 Status (Box 13f) and Chapter 4 Status (Box 13g)

Recipient Code 33 applies when reporting a U.S. reportable account under Model 1 IGA where the account holder is subject to Chapter 3 withholding. Recipient Code 34 applies when reporting a nonconsenting U.S. account under Model 2 IGA where the account holder is subject to Chapter 3 withholding. Recipient Code 44 (Recalcitrant Pool—Dormant Account) applies separately for dormant accounts under FATCA reporting requirements.

4. Complete Box 3 Chapter Indicator

Enter either “3” or “4” in Box 3 to indicate the chapter with respect to which Form 1042-S is being filed. When income is subject to both chapters, report on separate Forms 1042-S per the 2021 instructions. Do not report a single form with mixed chapter indicators.

5. Enter Exemption Codes (Boxes 3a and 4a) When Applicable

You must enter exemption codes only if the tax rate in Box 3b or 4b equals 00.00. Exemption Code 23 (Exempt under Section 897(l)) applies to distributions made by a REIT to qualified foreign pension funds. Section 897(l) became effective December 18, 2015, and provides exemption from FIRPTA taxation for qualified foreign pension funds and certain wholly owned entities.

6. Complete Box 7b Escrow Election if Applicable

Check Box 7b only if federal tax withheld was not deposited with the IRS in 2021 because escrow procedures applied under Regulations Section 1.1471-4(b)(6). This election applies when a participating FFI or registered deemed-compliant FFI applies escrow procedures for accounts where the status remains unestablished. Include substantiation of escrow election eligibility in withholding agent records.

7. Enter Box 7c Indicator for Partnership Withholding in Subsequent Year

Check Box 7c only if withholding on a partnership interest occurred in the year following 2021. This applies when a partnership distribution was made in 2021, but the withholding obligation was deferred to 2022 per IRC §1446(f) safe harbor rules. Do not check this box for withholding that occurred during calendar year 2021.

8. Report Box 9 Overwithheld Tax Repaid to Recipient

Report overwithheld tax repaid to the recipient only if adjustment procedures allowed repayment under 2021 IRS guidance or withholding agent arrangement. Substantiate adjustment eligibility in the withholding agent's 2021 work file. The withholding agent may use reimbursement or set-off procedures until the extended due date for filing Form 1042-S.

2021 Tax Year-Specific Updates

Chapter 4 Status Codes for IGA Reporting

• Code 33 (U.S. reportable account): Used when reporting under Model 1 IGA for accounts subject to Chapter 3 withholding that do not meet pool requirements.
• Code 34 (Nonconsenting U.S. account): Used when reporting under Model 2 IGA for accounts subject to Chapter 3 withholding that do not meet pool requirements.
• Code 44 (Recalcitrant Pool—Dormant Account): Used separately for dormant accounts under FATCA reporting procedures.

Income Code 40 for Dividend Equivalents

Income Code 40 covers other dividend equivalents under IRC §871(m). Section 871 was originally enacted as §871(l) in March 2010 and redesignated as §871(m) later in 2010. Use Code 40 only for synthetic equity transaction income that qualifies as a dividend equivalent under Treasury regulations.

Limitation on Benefits Codes

Box 13j LOB codes remain unchanged from prior years for withholding agents, reducing rates based on treaty claims. The 2021 instructions clarify that treaty claim qualifications must reflect the tax treaty in force as of December 31, 2021. This includes any amended treaties that became effective during calendar year 2021.

GIIN Verification Requirements

Box 12e (Withholding Agent GIIN) and Box 13h (Recipient GIIN) remain mandatory for Chapter 4 reporting. The 2021 instructions confirm that GIIN status must be verified as of the Form 1042-S filing date. Verification is required as of the actual filing date, not any filing extension date granted by the IRS.

Filing Requirements

• File Forms 1042-S with the IRS by March 15, 2022.
• Furnish Copies B, C, and D to the recipient of income by March 15, 2022.
• Financial institutions must file Forms 1042-S electronically regardless of the number of forms filed.
• Other filers must file electronically if filing 250 or more Forms 1042-S.
• Use Form 1042-T to transmit paper Forms 1042-S to the IRS.
• File Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, in conjunction with Forms 1042-S.

Need Help With Your Tax Filing?

If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.

We offer:

• Full IRS transcript retrieval (Wage & Income + Account)
• Professional tax form review
• Preparation & filing support
• Tax relief options if you owe the IRS

Call now before filing: (888) 260-9441
Fast transcript pull available

‍

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.