Form 1042-S (2023): Foreign Person Income Reporting Guide Checklist

Form 1042-S, 2023

Purpose and Scope for 2023

Form 1042-S reports U.S.-source income paid to foreign persons and federal tax withheld under Chapter 3 (nonresident withholding) or Chapter 4 (FATCA) rules. Withholding agents must apply updated Chapter 4 status codes for 2023, including Code 50 for foreign branches of U.S. financial institutions operating as withholding agents. The form serves to document both payments and withholding obligations under applicable tax code provisions.

Essential Compliance Steps

1. Verify Chapter 3 vs. Chapter 4 Applicability

You must enter “3” or “4” in Box 3 based on the recipient's tax classification under the applicable chapter. Chapter 4 categorization applies when the recipient is a foreign financial institution (FFI), nonfinancial foreign entity (NFFE), or other entity subject to FATCA withholding obligations under Final Regulations section 1.1471 et seq. Confirm that the recipient's Global Intermediary Identification Number (GIIN) in Box 13h is current and matches IRS FATCA registration records when applicable.

2. Complete Income Code Selection (Box 1)

Select the appropriate 2023 income code from the expanded code list published in the form instructions.

• Income Codes 42 and 43 (artist/athlete earnings) require a corresponding Recipient Status Code 22 in Box 13f or 13g.
• Do not use Recipient Codes 16, 15, or 08 when artist/athlete status applies, and Income Code 42 or 43 is reported.
• Verify substitute payment codes (33, 34, 35, 54, 53) only if the income qualifies under Treasury Regulations section 1.871(m) rules for derivative contracts or publicly offered securities.

3. Record Gross Income and Net Income (Boxes 2 and 6)

Enter gross income in Box 2 before applying any withholding allowances or treaty reductions. Box 6 (net income) must be completed only when you have entered an amount in Box 5 (withholding allowance). Box 5 is generally used only for specific income codes related to personal services, including Codes 16, 17, 18, 19, 20, or 42.

4. Apply Exemption Codes for Zero or Reduced Rates (Boxes 3a, 4a)

When the tax rate in Box 3b or 4b is 00.00, enter the corresponding exemption code in Box 3a or 4a.

• Exemption Code 23 (exempt under section 897(l)) applies to distributions made by a Qualified Investment Entity to a qualified foreign pension fund or an entity wholly owned by such a fund.
• Exemption Code 24 (exempt under section 892) applies to the income of foreign governments and their wholly owned agencies.
• Exemption Code 19 (exempt from withholding under IGA) applies to payments under Model 1 or Model 2 intergovernmental agreements but cannot be used for nonconsenting U.S. accounts (status code 34).

5. Designate Withholding Agent Status and GIIN (Boxes 12b, 12c, 12e)

Enter the withholding agent's Chapter 3 status code in Box 12b and Chapter 4 status code in Box 12c. Chapter 4 Status Code 50 (U.S. Withholding Agent—Foreign Branch of FI) is available for 2023 when a foreign branch of a U.S. financial institution issues Form 1042-S. The GIIN in Box 12e must match the withholding agent's registration with the IRS FATCA registration system; omit this entry if the withholding agent is not a financial institution.

6. Identify Recipient Status Using 2023 Codes (Boxes 13f, 13g)

• Box 13f requires the recipient's Chapter 3 status code.
• Box 13g requires the recipient's Chapter 4 status code.

Key 2023 recipient codes include:

• Code 22 (artist or athlete): Required when Income Code 42 or 43 is used; replaces Codes 16 (individual), 15 (corporation), or 08 (partnership).
• Code 33 (U.S. reportable account): Identifies accounts subject to FATCA compliance reporting.
• Code 34 (nonconsenting U.S. account): Distinguishes nonconsenting account holders under FATCA.
• Code 38 (U.S. Branch—ECI presumption applied): Designates branches subject to effectively connected income presumptions.

7. Report Partnership Withholding Timing (Boxes 7b, 7c)

Check Box 7b only if the federal tax withheld in Box 7a was not deposited with the IRS because escrow procedures were applied under applicable regulations. Box 7c must be checked if you are a partnership that received an amount subject to withholding during 2023 and you are withholding on the foreign partner's share after March 15, 2024, having designated the deposit as attributable to 2023. This checkbox addresses timing issues specific to partnership withholding under section 1446(a).

8. Complete Intermediary or Flow-Through Entity Information (Boxes 15a–15i)

When income flows through a qualified intermediary (QI), withholding foreign partnership (WFP), withholding foreign trust (WFT), or other intermediary, enter the intermediary's EIN (Box 15a), Chapter 3 status (Box 15b), and Chapter 4 status (Box 15c). The GIIN in Box 15e is mandatory for all registered intermediaries and FFIs. Intermediary status codes for 2023 include Code 39 (Disclosing Qualified Intermediary) for QIs publicly disclosing pool membership.

9. Populate Payer Information (Boxes 16a–16e)

• Enter payer's name (Box 16a), TIN (Box 16b), and GIIN (Box 16c) when a third party, such as an intermediary or conduit, pays income.
• Chapter 3 and Chapter 4 status codes (Boxes 16d and 16e) identify the payer's classification.
• Payer status codes align with recipient and intermediary codes established in the 2023 instructions.

Omit payer information if the withholding agent and payer are the same entity.

10. Address Limitation on Benefits (LOB) Treaty Claims (Box 13j)

Enter the LOB code in Box 13j to reflect the recipient's treaty entitlement category under the applicable tax treaty. Code 10 (discretionary determination) is used only when the withholding agent has obtained IRS Letter 4092-A granting relief under the treaty's discretionary relief provision. The LOB code must correspond to the specific treaty article and category claimed by the recipient for reduced withholding rates.

Key 2023 Reporting Updates

Publicly Traded Partnership Reporting

• Income Code 57 applies to amounts realized from transfers of PTP interests for purposes of section 1446(f) reporting by brokers.
• Income Code 58 applies when nominees report PTP distributions and cannot determine income characterization in the absence of a qualified notice.
• Chapter 3: Status Code 38 must be used when reporting payments to or from a PTP making a distribution.

Qualified Derivatives Dealers

The 2023 instructions provide specific guidance on reporting payments made to and by qualified derivatives dealers (QDDs). Withholding agents must follow specialized procedures when QDDs are involved in transactions subject to reporting on Form 1042-S. These procedures address the unique withholding and documentation requirements applicable to QDD transactions under the relevant regulations.

Disclosing Qualified Intermediary Status

Chapter 3 Status Code 39 (Disclosing QI) is available starting in 2023 for situations where a broker, PTP, or nominee makes a payment to a QI acting as a disclosing QI. The disclosing QI's information must be reported in Boxes 15a through 15i of the form. Brokers and other withholding agents must provide recipient copies of Form 1042-S to the disclosing QI's account holders when this reporting structure applies.

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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.