Form 1042-S and Form 1042 Checklist: 2019 Tax Year
Withholding agents who paid U.S.-source income to foreign persons during calendar year 2019 must understand their reporting obligations under Form 1042-S and Form 1042. These forms document withheld taxes on nonresident alien income under Chapters 3 and 4 of the Internal
Revenue Code.
Determining Withholding Agent Status and Filing
Requirements
You qualify as a withholding agent if you paid FDAP income to foreign persons during 2019.
FDAP income encompasses interest income, dividends, royalties, rents, annuities, pension distributions, and compensation for services requiring withholding at 30% unless exceptions apply.
Identifying FDAP Income and Reporting Requirements
FDAP income includes compensation for services, which means you must report certain personal service payments to foreign persons. Wages and other compensation paid to employees generally appear on Form W-2, except when the beneficial owner claims treaty benefits for dependent personal services.
Compensation for independent personal services to independent contractors and dependent personal services under treaty claims must be reported on Form 1042-S. This distinction prevents double reporting and ensures foreign persons receive proper documentation for their
U.S. tax returns.
Withholding Rate Application and Treaty Benefits
The default withholding rate for 2019 Form 1042-S is 30% unless specific exceptions apply. You must identify the applicable treaty country and apply reduced treaty rates when valid documentation supports the claim.
Certain income categories receive different treatment
- Capital gains derived from the sale of property are generally not subject to FDAP
withholding under the Internal Revenue Code.
- Income that is effectively connected with a U.S. trade or business follows separate
reporting and withholding rules under different tax provisions and is not treated as FDAP income.
- Interest earned on certain deposit accounts may qualify for statutory or regulatory
exemptions from withholding, depending on the specific facts and circumstances.
- Original issue discount income requires careful classification to determine whether it is
subject to withholding and to identify the correct applicable tax rate.
Verify income classification before determining the withholding rate to ensure accurate tax treatment and proper application of treaty benefits.
Completing Form 1042-S Box Entries
Each foreign recipient requires a separate 2019 Form 1042-S containing complete identification information, including name, address, country code, and taxpayer identification number. Box 2 reports the gross income amount, while Box 7a shows federal tax withheld during the calendar year.
Enter “0” in Box 2 and Box 7a if no withholding occurred, and maintain documentation explaining the reason for zero withholding. Missing or incomplete box entries delay IRS processing and may trigger penalty assessments against withholding agents.
Income Classification Codes for Box 1
The 2019 Form 1042-S uses specific income codes in Box 1 to identify payment types
accurately. Use the following codes for common income categories
- Code 01: Interest income from U.S. obligors
- Code 06: Dividend income from domestic corporations
- Code 11: Rental income from real or personal property
- Code 12: Royalty income from intangible property rights
- Code 27: Annuities paid to foreign beneficiaries
- Code 28: Pension distributions and retirement plan payments
The 2019 instructions introduced income code 55 for taxable death benefits paid on life insurance contracts, representing a change from the prior year. Additional codes cover other
FDAP categories, and incorrect codes delay processing, so verify each classification aligns with the actual income type.
Documentation Requirements for Treaty Claims
Valid withholding certificates must be maintained for each foreign recipient claiming reduced rates under bilateral U.S. income tax treaties. The 2019 instructions require possession of Form
W-8BEN, Form W-8BEN-E, Form W-8IMY, or other applicable certificates before reducing or eliminating withholding.
Withholding agents must obtain documentation before applying treaty benefits, and if a payee failed to provide timely documentation in 2019, you must withhold at the highest applicable rate.
Proper documentation protects withholding agents from liability and ensures foreign persons receive appropriate treaty benefits under applicable agreements.
Form 1042 Reconciliation and Deposit Requirements
Aggregate all 2019 withholding amounts from individual Forms 1042-S and transfer totals to the appropriate lines on Form 1042. The reconciliation section must match the withheld tax shown on Form 1042-S attachments with amounts deposited during the year through authorized payment methods.
Document all deposits made through the Electronic Federal Tax Payment System during 2019 with specific dates and amounts. Shortfalls and overpayments require explanation in the reconciliation section to avoid IRS inquiries and potential penalty assessments.
Penalty Structure Under IRC Sections 6656 and 6651
The 2019 instructions describe failure-to-deposit penalties under IRC section 6656 with tiered rates based on the timing of deposits. Deposits made one to five days late incur a 2% penalty, while deposits six to fifteen days late face a 5% penalty.
A 10% penalty is imposed on deposits that are more than fifteen days late, and a 15% penalty is triggered if the deposits are not made within ten days of the IRS notice demanding payment.
These rates remained consistent with prior years and apply to all withholding agents regardless of deposit size.
Late filing penalties under IRC section 6651(a)(1) assess 5% per month up to a 25% maximum of unpaid tax. Late payment penalties under IRC section 6651(a)(2) charge 0.5% per month up to a 25% maximum of unpaid amounts.
Assembly and Distribution Requirements
Prepare multiple copies of each 2019 Form 1042-S for proper distribution to all required parties.
Copy A accompanies Form 1042 to the IRS, Copy B goes to the foreign recipient, and Copies C and D remain in your records for future reference.
All copies must show consistent income and withholding figures to prevent processing delays and recipient confusion. The person signing Form 1042 must have authority to verify all reported information, and pages must be assembled in the correct order: Form 1042 first, followed by all
Form 1042-S copies (Copy A), then supporting schedules.
Key 2019 Updates and Compliance Points
The 2019 instructions maintained consistent definitions of FDAP income and U.S. source income rules under Chapters 3 and 4 of the Internal Revenue Code. Withholding rate tables incorporated current treaty amendments effective for calendar year 2019, requiring verification of treaty eligibility against 2019-specific provisions for each foreign recipient.
The instructions clarified that effectively connected income earned by foreign corporations is not subject to FDAP withholding and follows separate reporting rules. Form 1042-S's general box structure was mostly maintained from the previous year's format, which helped withholding agents’ reporting procedures run smoothly and reduced the learning curve.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
