IRS Form 1042-S (2019): U.S. Source Income Reporting

What Form 1042-S Is For

IRS Form 1042-S (2019), officially titled Foreign Person’s U.S. Source Income Subject to Withholding, reports income paid to nonresident aliens, foreign partnerships, corporations, and trusts, along with any tax withheld under the Internal Revenue Code. It’s similar to Form 1099 or W-2 but applies only to foreign persons. 

The form helps ensure compliance with U.S. tax withholding and reporting rules for payment, including dividends, interest, rents, royalties, scholarships, and compensation for personal services. Withholding agents—including employers, universities, and financial institutions—must file this form to document payments made and federal taxes withheld for each foreign recipient during the tax year. 

When You’d Use Form 1042-S

You would use IRS Form 1042-S (2019) to report U.S.-source income paid to a foreign person during the 2019 tax year. This includes filing for dividends, interest, or service payments where tax was withheld under the Internal Revenue Code.

• Filing deadline: The due date for 2019 forms was March 16, 2020, since March 15 fell on a Sunday. Both the IRS and the recipient must receive copies by that date.
  
  
• Late or amended filings: If you missed the deadline or found an error, submit a corrected form as soon as possible.
  
  
• Penalties: The IRS may charge penalties and interest for late, incorrect, or missing forms, with fines ranging from $50 to $270 per form.
  
  
• Extensions: Use Form 8809 to request an extension of time before the original tax deadline.

Access the IRS Form Help Center for guidance on compliance documents needed when reporting foreign-recipient income on Form 1042-S.

Key Rules and Details for 2019

The IRS outlined several necessary filing and reporting rules for IRS Form 1042-S (2019) to improve accuracy in tax withholding and income reporting for foreign individuals and entities.

• Electronic Filing Requirements: Anyone filing 250 or more forms, including financial institutions, must submit them electronically through the IRS FIRE System. Paper filing was permitted only for smaller filers or notable exceptions.
  
  
• Withholding and Tax Rates: Most U.S.-source income was subject to a 30% withholding rate, unless reduced or waived under an applicable tax treaty. Certain effectively connected income was taxed through standard individual income tax returns instead.
  
  
• Reporting Income and Tax Liability: Filers were required to report all income paid, tax paid, and any unpaid taxes to determine each recipient’s tax liability and track federal procurement payments, dividends, royalties, and services.
  
  
• Late Filing and Refund Use: Failure to file on time may result in penalties or interest if the filer continues to owe tax or delays tax payment. Foreign recipients used the form when completing their federal income tax return to claim a tax refund or reconcile estimated tax payments.

Review how the IRS collection process applies when withholding obligations or foreign-income reporting errors create outstanding tax balances.

Step-by-Step Filing Process (High Level)

Filing IRS Form 1042-S (2019) correctly is crucial to ensure compliance with U.S. tax regulations and to avoid incurring costly penalties. The following steps outline the proper filing process for withholding agents and foreign entities.

1. Gather Required Information: Collect all records of amounts paid to foreign recipients, including W-8 forms and payment documentation. Every withholding agent, foreign trust, qualified intermediary, or flow-through entity must maintain accurate data for tax purposes and verification.
   
   
2. Identify Recipients and Income: Confirm whether each payee is a nonresident alien individual, a foreign branch, or a business entity. Ensure each recipient has a valid taxpayer identification number and accurate permanent residence information before reporting payments.
   
   
3. Complete the Form: Enter all required details, such as gross income, withholding rates, and exemption codes. The IRS requires one form for each income type per recipient. Follow 2019's specific rules to avoid a filing penalty.
   
   
4. Submit the Form: Calendar-year filers must file by the annual tax day, unless it falls on a legal holiday or weekend; in that case, the next business day applies. Payments may be made by check or money order.
   
   
5. Handle Payments and Penalties: If any required tax remains unpaid, the IRS charges a late payment penalty. When taxpayers owe money, the penalty continues to grow until the balance is cleared.
   
   
6. Claim Exemptions and Credits: Certain personal exemption rules or refundable credits may apply for S corporations or other qualified entities under U.S. treaties or fiscal year adjustments. Confirm eligibility before submitting your final tax return. (230 words)

Common Mistakes and How to Avoid Them

Even minor filing errors on IRS Form 1042-S (2019) can result in penalties and delays. Below are common mistakes and how to prevent them.

• Missing or incorrect information: Forgetting details for a non-qualified intermediary or other entity can cause mismatched records. Always verify names, addresses, and identification numbers before filing.
  
  
• Incorrect tax calculation: Misreporting the total amount of income or tax withheld can trigger a five percent adjustment by the IRS. Double-check all figures against payment records.
  
  
• Late filing or payment: Failing to submit or pay on time may result in a penalty that increases the longer the balance remains outstanding. File early, verify electronic submissions, and retain proof of timely payments to help avoid penalties and ensure compliance with regulations.

Learn how withholding agents resolve unpaid withholding or late Form 1042-S assessments through IRS payment plan options.

What Happens After You File

After submitting IRS Form 1042-S (2019), the IRS reviews your original form to confirm all required tax amounts were properly reported and paid. If a non-qualified intermediary or self-employed filer submits incomplete data, the agency may issue a notice to correct errors. If taxes remain unpaid, the IRS will assess penalties, and interest will accrue until the penalty is resolved. 

Keep copies of all filings and confirmations for your records. The IRS generally processes updates by the fourth month after submission. Always use secure e-filing systems, indicated by the locked padlock icon, to protect sensitive taxpayer information.

FAQs

What is considered effectively connected income for Form 1042-S?

Effectively connected income refers to U.S.-source income linked to a trade or business in the United States. It is generally taxed differently from passive income and must be reported accurately on Form 1042-S.

Who is treated as a foreign person under IRS Form 1042-S (2019)?

A foreign person includes a nonresident alien, foreign partnership, foreign corporation, or other non-U.S. entity that receives income from U.S. sources and is subject to withholding under the Internal Revenue Code.

How does a foreign corporation report payments on Form 1042-S?

A foreign corporation must report any U.S.-source income and withholding tax information using the proper fields and income codes specified in the form’s instructions.

What types of income are subject to withholding under Form 1042-S?

Payments of source income, such as dividends, interest, royalties, rents, or compensation made to foreign persons are subject to withholding unless an exemption or tax treaty applies.

Do nonresident aliens need to file Form 1042-S themselves?

A nonresident alien typically receives Form 1042-S from a withholding agent rather than filing it directly. The form helps the recipient report income and withholding when submitting a U.S. tax return.