Form 1042-S: A Complete Guide for Foreign Persons Receiving U.S. Income (2019)

What the Form Is For

Form 1042-S, titled "Foreign Person's U.S. Source Income Subject to Withholding," is an official IRS information return used to report income paid to foreign individuals and entities from U.S. sources. Think of it as the international equivalent of a Form 1099 or W-2, but specifically designed for nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, and foreign estates.

The form serves two primary purposes. First, it documents payments made to foreign persons, including dividends, interest, rents, royalties, scholarships, fellowship grants, compensation for personal services, pensions, and other types of fixed or determinable annual or periodical (FDAP) income. Second, it reports the amount of U.S. tax that was withheld from these payments under Chapter 3 of the Internal Revenue Code, and beginning in recent years, also under Chapter 4 (commonly known as FATCA—the Foreign Account Tax Compliance Act).

Any U.S. entity or individual acting as a "withholding agent"—meaning anyone who has control over U.S.-source income payments to foreign persons—must file Form 1042-S. This includes universities paying foreign student stipends, companies employing nonresident aliens, banks paying interest to foreign account holders, and investment firms distributing dividends to foreign investors. The form is filed with the IRS and copies are provided to the foreign recipient, who uses it to prepare their U.S. tax return or claim refunds for over-withheld taxes.

When You’d Use It (Late and Amended Filings)

For the 2019 tax year, Form 1042-S must be filed by March 16, 2020 (since March 15, 2020 fell on a Sunday). This deadline applies both to filing with the IRS and furnishing copies to recipients. The form reports income paid during the 2019 calendar year, regardless of when the tax year of the foreign recipient ends.

If you missed the deadline, you should file as soon as possible to minimize penalties. The IRS imposes escalating penalties based on how late you file: $50 per form if filed within 30 days of the deadline (up to $545,500 total, or $191,000 for small businesses), $100 per form if filed between 31 days and August 1 ($1,637,500 maximum, or $545,500 for small businesses), and $270 per form if filed after August 1 or never filed correctly ($3,275,500 maximum, or $1,091,500 for small businesses).

If you need more time before the deadline, you can request an extension using Form 8809, Application for Extension of Time to File Information Returns. This grants an automatic 30-day extension, and you may request a second 30-day extension if needed. However, extensions must be requested before the original deadline. Similarly, if you need extra time to provide recipient copies, you can request an extension by writing to the IRS Information Returns Branch in Kearneysville, West Virginia.

Amended returns are necessary when you discover errors on a previously filed Form 1042-S. To amend, you check the "Amended" box at the top of the form and enter an amendment number (1 for the first amendment, 2 for the second, and so on). The amended form must use the same unique form identifier as the original, allowing the IRS to match them. Common reasons for amendments include incorrect income amounts, wrong recipient information, incorrect tax rates or exemption codes, or missing required data. If you filed 250 or more original forms electronically (or you're a financial institution), your amendments must also be electronic, but if you're amending fewer than 250 forms, you may file on paper even if the originals were electronic.

Key Rules for 2019

Several important rules governed Form 1042-S filing for 2019. First, electronic filing was mandatory for anyone filing 250 or more forms, any financial institution (U.S. or foreign), or partnerships with more than 100 partners or filing 150 or more Forms 1042-S. Electronic submissions use the IRS Filing Information Returns Electronically (FIRE) system, available 24/7 at fire.irs.gov. Those not required to file electronically could still submit paper forms, but the IRS strongly encouraged electronic filing.

The withholding rate structure for 2019 followed standard rules: most U.S.-source FDAP income paid to foreign persons was subject to 30% withholding unless reduced or eliminated by a tax treaty, Code exemption, or because the income was effectively connected with a U.S. trade or business. Specific rates applied to particular situations—for example, partnerships withholding under Section 1446 used a 21% rate for corporate partners and 37% for other partners on distributions of effectively connected income. Qualified Investment Entities distributed U.S. real property interest gains at a 21% rate.

Account-by-account reporting was required for U.S. financial institutions and U.S. branches of foreign financial institutions. If the same recipient held multiple financial accounts and received the same type of income (determined by the income code) in multiple accounts, a separate Form 1042-S was required for each account. This rule enhanced transparency for FATCA compliance and made it easier to track foreign accounts.

The 2019 form introduced a new checkbox (Box 7c) specifically for partnerships to indicate whether withholding with respect to a partnership interest occurred in the subsequent year. This addressed special timing rules under Section 1446. Additionally, income code 55 was newly added to report taxable death benefits paid on life insurance contracts, and withholding agents had to report both Chapter 3 and Chapter 4 status codes regardless of payment type.

Another key requirement involved foreign tax identification numbers (FTINs) and dates of birth: financial institutions filing Form 1042-S for payments on obligations they maintained at U.S. offices had to report the recipient's FTIN and date of birth (if the recipient was an individual). This increased information sharing helped the IRS verify treaty claims and cross-check foreign tax reporting.

Step-by-Step (High Level)

The Form 1042-S filing process involves several straightforward steps, whether you're a university, employer, financial institution, or other withholding agent.

Step 1: Gather Documentation

Collect all withholding documentation you received from foreign payees during 2019, including Forms W-8BEN (for individuals), W-8BEN-E (for entities), W-8ECI (for effectively connected income), W-8EXP (for governments and tax-exempt organizations), W-8IMY (for intermediaries), or Form 8233 (for compensation claims). These forms establish the payee's foreign status, tax treaty eligibility, and proper withholding rate.

Step 2: Determine Reporting Requirements

Identify each foreign person who received reportable income and the type(s) of income paid. You must file a separate Form 1042-S for each recipient and for each type of income (identified by specific income codes). For example, if you paid both scholarship income (code 15) and compensation for personal services (code 17) to the same student, you'd file two forms.

Step 3: Complete the Form

Enter all required information, including: your unique 10-digit form identifier (numeric only, not the recipient's TIN); the income code (Box 1) describing the payment type; the gross income amount (Box 2, which cannot be zero); Chapter indicator (Box 3, either "3" or "4"); exemption codes and withholding rates for both Chapter 3 and Chapter 4; your information as withholding agent (name, address, EIN, status codes); and recipient information (name, address, country code, TIN if available, GIIN if applicable). Use only codes and tax rates specified in the official IRS instructions—never "blend" rates or make up codes.

Step 4: File with the IRS

If filing electronically (via the FIRE system), upload your data following the specifications in Publication 1187. The system operates 24/7, and you must check transmission status within 5 business days. If filing on paper (and eligible to do so), send Copy A of all Forms 1042-S together with Form 1042-T (Annual Summary and Transmittal) to the IRS address shown in the Form 1042-T instructions. Use a separate Form 1042-T for each type of form filing. All forms must be filed by March 16, 2020.

Step 5: Furnish Recipient Copies

Provide Copies B, C, and D of Form 1042-S to each recipient by March 16, 2020. Recipients use these copies to file their own U.S. tax returns (typically Form 1040-NR for nonresident alien individuals) or to claim refunds for over-withheld taxes. Copies must exactly match what you filed with the IRS.

Step 6: File Form 1042

In addition to Form 1042-S, you must also file Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons) to report total amounts withheld. Form 1042 is the annual return that reconciles your tax deposits with amounts reported on all your Forms 1042-S.

Common Mistakes and How to Avoid Them

Filing errors can trigger penalties and delays in recipients' refund claims. Here are the most frequent mistakes and how to avoid them:

Missing or incomplete required fields

At minimum, you must complete the unique form identifier, income code (Box 1), gross income (Box 2), chapter indicator (Box 3), payment date (Box 7a), withholding agent information (Boxes 12a-12i), and recipient information (Boxes 13a-13e). Leaving required fields blank will cause processing delays. Solution: Use a checklist from the instructions to verify every required field before filing.

Entering zero in the gross income field (Box 2)

Gross income can never be zero—if no payment was made, don't file a form. Solution: Only file when actual payments occurred, even if the amount was fully withheld.

Using incorrect or unsupported codes

Income codes, exemption codes, status codes, and country codes must match exactly those listed in the official IRS instructions. Don't improvise or use outdated codes. Solution: Cross-reference the instructions' code tables for every entry, and verify treaty countries at IRS.gov when using exemption code 04.

Blending tax rates

If the tax rate changed during the year (for example, due to a new treaty becoming effective), file separate Forms 1042-S for each rate period rather than calculating an average rate. Solution: When rates change, split the reporting into multiple forms reflecting the different rates.

Reporting a U.S. address for a foreign recipient

Recipients should generally have foreign addresses unless they fall into specific exceptions (like a U.S. branch treated as a foreign person). Solution: Verify the recipient's foreign status and obtain their foreign address from their Form W-8.

Listing multiple joint owners as recipients

Form 1042-S can only name one recipient in Box 13a, even if multiple people jointly own an account or received the payment. Solution: Select one owner as the primary recipient and name only that person on the form.

Failing to file electronically when required

If you meet the 250-form threshold, are a financial institution, or are a qualifying partnership, you must file electronically unless you receive a hardship waiver (Form 8508). Solution: Count your forms early and set up FIRE system access well before the deadline if electronic filing is required.

Not reporting required Chapter 4 (FATCA) information

For withholdable payments, Boxes 4a, 4b, and 13g are mandatory. Many filers forget these newer FATCA-related requirements. Solution: Determine whether each payment is "withholdable" under Chapter 4 and complete all Chapter 4 fields accordingly.

Incorrect substitute forms

If you create your own version of Form 1042-S rather than using the official form, it must be an exact copy in both format and content. Deviations can result in penalties. Solution: Use the official IRS form or ensure your substitute complies fully with Publication 1179 specifications.

Not providing recipient copies on time

Recipients must receive their copies by the same March 15 deadline as the IRS filing. Late furnishing to recipients carries separate penalties (up to $270 per form). Solution: Mail recipient copies at least one week before the deadline to account for delivery time.

What Happens After You File

Once you submit Form 1042-S, several processes unfold. The IRS processes your submission and matches it against your Form 1042 (the annual withholding tax return) to ensure reported withholdings align with tax deposits you made throughout the year. Electronic filers should check their FIRE system account within 5 business days to verify successful transmission and review any error reports. The IRS won't mail error notifications for "bad" files, so checking online is essential.

For recipients, the Form 1042-S serves as official documentation of U.S.-source income and withholding. Foreign nationals who received a Form 1042-S generally must file a U.S. tax return, typically Form 1040-NR (U.S. Nonresident Alien Income Tax Return), regardless of whether they owe additional tax. Recipients attach Copy B of Form 1042-S to their tax return when filing by paper, or enter the information if filing electronically. The income and withholding reported on Form 1042-S flow onto the tax return, and recipients can claim refunds if too much tax was withheld—for example, if treaty benefits apply or if they qualified for exemptions that weren't initially claimed.

If the IRS identifies discrepancies between your Form 1042-S filings and your Form 1042, or finds missing required information, you may receive correspondence requesting corrections or amendments. Respond promptly to avoid escalating penalties. Keep in mind that you must retain copies of all Forms 1042-S filed (or have the ability to reconstruct the data) for at least 3 years after the reporting due date for audit purposes.

Penalty enforcement occurs if forms are late, incorrect, or missing. The IRS assesses penalties based on the timing and nature of errors. These penalties can add up quickly with large numbers of forms, but they may be waived if you can demonstrate reasonable cause and not willful neglect. If you intentionally disregard filing requirements, penalties increase to the greater of $540 per form or 10% of the amounts required to be reported, with no maximum cap.

Recipients experiencing delays in receiving their copies should contact the withholding agent first. If that fails, they can contact the IRS, although processing times may be lengthy. Recipients can sometimes reconstruct the information from their own records of payments received and taxes withheld.

FAQs

1. What's the difference between Form 1042-S and Form 1099?

Form 1099 is for U.S. persons (citizens, residents, domestic corporations, etc.), while Form 1042-S is specifically for foreign persons receiving U.S.-source income. The key distinction lies in the recipient's tax status. If you're uncertain whether someone is a U.S. or foreign person, request either Form W-9 (for U.S. persons) or the appropriate Form W-8 (for foreign persons). Never use both forms for the same person for the same payment—one or the other, based on their status.

2. Do I need to file Form 1042-S if no tax was withheld?

Yes, in most cases. You must file Form 1042-S even when no tax was withheld because the income was exempt under a treaty, exempt under the Code (such as effectively connected income), or eligible for a withholding exemption. The form documents that the payment occurred and explains why no withholding was required. The only exceptions are specific situations listed in the instructions under "Amounts That Are Not Subject to Reporting."

3. Can I truncate the recipient's taxpayer identification number (TIN)?

Yes, but only on the copies provided to recipients (Copies B, C, and D), not on Copy A filed with the IRS. You may display only the last four digits of the SSN, ITIN, or EIN on recipient copies, replacing the other digits with asterisks or Xs (for example, XXX-XX-1234). The same truncation rules apply to foreign tax identification numbers (FTINs). You cannot truncate the withholding agent's EIN on any copy.

4. What if I discover an error after filing?

File an amended Form 1042-S as soon as you discover the error. Mark the "Amended" checkbox, assign an amendment number (1 for the first correction, 2 for the second, etc.), and use the same unique form identifier as the original. Provide corrected copies to recipients and update your Form 1042 if the error affects withholding amounts. Correcting errors promptly can reduce potential penalties and help recipients file accurate tax returns.

5. What should a recipient do upon receiving Form 1042-S?

Recipients should keep the form for their tax records and use it to prepare their U.S. tax return. Nonresident aliens typically file Form 1040-NR, reporting the income shown on Form 1042-S and claiming credit for taxes withheld (shown in Box 7a). If withholding exceeded the actual tax liability—for example, due to treaty benefits—the recipient can claim a refund. Recipients without a U.S. taxpayer identification number should apply for an ITIN (Individual Taxpayer Identification Number) using Form W-7 before filing their tax return.

6. How do tax treaties affect Form 1042-S?

Tax treaties between the U.S. and the recipient's country of residence may reduce or eliminate withholding on certain types of income. If a recipient claims treaty benefits on their Form W-8BEN or other withholding certificate, the withholding agent applies the reduced treaty rate and reports this on Form 1042-S using exemption code 04 in Box 3a. The country code in Box 13b must correspond to a valid treaty country. For entities claiming treaty benefits, a limitation on benefits (LOB) code must also be reported in Box 13j to indicate which treaty provision qualifies the entity for benefits.

7. What are the requirements for electronic filing?

Electronic filing is mandatory if you file 250 or more Forms 1042-S (regardless of entity type), you are any financial institution (domestic or foreign), or you are a partnership with more than 100 partners or filing 150 or more information returns. Electronic submissions use the FIRE System (fire.irs.gov) and must follow specifications in Publication 1187. If you cannot meet electronic filing requirements due to hardship, file Form 8508 to request a waiver at least 45 days before the deadline. Without a waiver, failure to file electronically when required results in penalties.

Sources

IRS Form 1042-S Overview
2019 Instructions for Form 1042-S (PDF)
Discussion of Forms 1042, 1042-S and 1042-T