Form 1042-S: Your Complete Guide to Reporting Foreign Person's U.S. Source Income (2021)

If you're a business or individual making payments to foreign persons, Form 1042-S is the IRS information return you'll need to understand. Think of it as the international cousin of Form 1099—it reports income paid to non-U.S. residents and the taxes withheld from those payments. While the form may look complex at first glance, this guide breaks down everything you need to know in plain English.

What the Form Is For

Form 1042-S serves as an information return that reports U.S.-source income paid to foreign individuals and entities. The "withholding agent" (the person or business making the payment) files this form with the IRS and provides copies to the foreign recipient.

The form reports several types of payments: Fixed, Determinable, Annual, or Periodical (FDAP) income such as interest, dividends, royalties, rents, compensation for services, scholarships, and certain capital gains. It also reports specified federal procurement payments to foreign persons under section 5000C, distributions from publicly traded partnerships, and payments of eligible deferred compensation to covered expatriates under section 877A.

Importantly, you must file Form 1042-S even if no tax was withheld—perhaps because the income was exempt under a tax treaty or Internal Revenue Code provision. The form documents the transaction regardless of whether withholding occurred. IRS.gov Form 1042-S Instructions

When You’d Use It (Including Late and Amended Returns)

Regular Filing Deadlines

For the 2021 tax year, Forms 1042-S must be filed with the IRS by March 15, 2022. You must also furnish copies to recipients by this same date. There's no flexibility here—both deadlines fall on the same day.

Extensions

If you need more time to file with the IRS, submit Form 8809 (Application for Extension of Time To File Information Returns) before the March 15 deadline. You'll automatically receive a 30-day extension, moving your deadline to April 15. If you need even more time, you can request a second 30-day extension by filing another Form 8809 before the first extension expires—but this time you must explain why you need additional time, and approval isn't automatic.

Extending the time to furnish recipient copies works differently. There's no specific form; instead, you must fax a letter to the IRS Technical Services Operation (fax: 877-477-0572) before March 15. Include your name, TIN, address, a statement that you're requesting an extension for providing statements to recipients, the reason for delay, and your signature. If approved, you'll receive a maximum 30-day extension to provide recipient copies.

Amended Returns

Discovered an error after filing? File an amended Form 1042-S using the same unique form identifier as the original but checking the "Amended" box and entering an amendment number (1 for the first amendment, 2 for the second, etc.). Remember: if you're amending Forms 1042-S, check whether you also need to amend the related Form 1042 annual return. IRS.gov About Form 1042-S

Key Rules for 2021

Several important rules governed Form 1042-S reporting in 2021:

• Electronic Filing Thresholds: Financial institutions must file electronically regardless of how many forms they're submitting. Other withholding agents must file electronically if they're filing 250 or more Forms 1042-S. The 250 threshold applies separately to original and amended returns—if you file 300 original returns electronically but only need to amend 200, the amendments can be submitted on paper.
• One Form Per Income Type: You cannot combine different types of income on a single Form 1042-S. If you pay the same foreign person both interest and dividends, you must file separate forms for each income type. However, you can aggregate multiple payments of the same income type onto one form, provided they're subject to the same withholding rate.
• Unique Form Identifier Required: Every Form 1042-S must include a unique 10-digit identifying number. This cannot be the recipient's taxpayer identification number. If you file 100 forms, you need 100 different identifiers. This number becomes critical for tracking amendments.
• New for 2021: Chapter 3 exemption code 02 was revised to read "Exempt under IRC" and should only be used when no other specific exemption code applies. New exemption code 24 was added for income exempt under section 892. If you're a U.S. person or foreign branch of a U.S. person, you must now enter "US" in the withholding agent country code field (Box 12f). IRS.gov 2021 Instructions

Step-by-Step (High Level)

Step 1: Gather Documentation

Collect Forms W-8 (W-8BEN, W-8BEN-E, W-8IMY, etc.) from your foreign recipients. This documentation determines the recipient's status, applicable tax rates, and whether treaty benefits apply. The information on these forms populates your Form 1042-S fields.

Step 2: Determine Your Reporting Obligation

Identify each payment of U.S.-source FDAP income made to foreign persons during the calendar year. There's generally no minimum threshold—every dollar counts (exception: bank deposit interest to certain nonresident aliens requires only $10 or more in aggregate to be reportable).

Step 3: Complete the Form

For each recipient and income type combination, complete a separate Form 1042-S. Essential information includes: the income code (indicating payment type), gross income amount, tax withheld (if any), exemption codes (if applicable), withholding agent information (including your EIN—never use an SSN), recipient information (name, address, status codes, TIN if available), and chapter indicator (whether you're reporting under Chapter 3 or Chapter 4/FATCA).

Step 4: File With the IRS

Electronic filers use the FIRE (Filing Information Returns Electronically) System at fire.irs.gov. Check your transmission status within 5 business days—the IRS won't mail error reports for bad files. Paper filers must attach Forms 1042-S to Form 1042-T (transmittal form) and mail to: Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301. Mail in a flat envelope (don't fold).

Step 5: Furnish Recipient Copies

Provide copies B, C, and D to each recipient by March 15. You may truncate the recipient's TIN on these copies (showing only the last four digits) for privacy protection. Keep Copy E for your records. Retain copies or the ability to reconstruct the data for at least 3 years after the reporting due date.

Step 6: File Form 1042

Don't forget: filing Forms 1042-S doesn't fulfill your obligation to file Form 1042, the annual withholding tax return. The information on all your Forms 1042-S should reconcile with Form 1042. IRS.gov Instructions

Common Mistakes and How to Avoid Them

The IRS has identified recurring errors that cause processing delays and potential penalties:

• Mistake #1: Listing Multiple Recipients in Box 13a - This is one of the most common errors. Each Form 1042-S must report only ONE recipient. If you pay two different foreign persons, file separate forms even if all other information is identical.
• Mistake #2: Incorrect Gross Income Reporting - Some withholding agents report amounts 100 times too high by entering dollars and cents as dollars only. Remember: report whole dollars only, no cents. If you paid $4,230.75, enter 4231 (rounded).
• Mistake #3: Missing Required TINs - Generally, you need the recipient's TIN to reduce withholding below 30%. Without proper documentation including a TIN, you must withhold at the maximum rate. Exceptions exist for portfolio interest and treaty rates on marketable securities, but when you have the TIN, you must report it.
• Mistake #4: Combining Different Income Types - Don't report interest, dividends, and royalties to the same person on one form. Use separate forms for each income code. However, you can aggregate five interest payments to the same person on one form.
• Mistake #5: Missing Required Fields - Common omissions include the unique form identifier, income code, gross income amount, withholding agent's EIN, and chapter indicator. Before filing, verify all required fields are complete.
• Mistake #6: Using Wrong Tax Year Form - Always use the form for the tax year you're reporting. Don't cross out the year on an old form and write in the new year. Forms are updated annually with new codes and requirements.
• Mistake #7: Filing Duplicate Returns - If you file electronically, don't also submit paper forms. Duplicate filing triggers penalty notices. Similarly, don't resubmit corrected returns as "originals"—mark them as amended with the same unique identifier. IRS.gov Information Reporting

What Happens After You File

Once you submit your Forms 1042-S, several things occur:

• IRS Processing: The IRS processes your forms and matches the information against the related Form 1042 annual return. Any discrepancies may generate inquiry letters. The service increasingly uses data analytics to identify reporting errors, so expect more automated notices in the future.
• Recipient Use: Foreign recipients use Form 1042-S when filing their U.S. tax returns (if required) or when claiming credits in their home countries under tax treaties. The form serves as proof of U.S. tax withheld, which may offset foreign tax obligations.
• Treaty Country Information Exchange: The IRS exchanges Form 1042-S information with treaty partners. This helps foreign tax authorities verify that their residents are properly reporting worldwide income.
• Penalty Assessment: If the IRS identifies errors, late filing, or non-compliance, penalty notices arrive separately from the forms processing. You may receive penalties for failure to file timely, failure to furnish recipient copies, failure to file electronically when required, or intentional disregard of requirements.
• Audit Selection: Form 1042-S data feeds into IRS audit selection systems. Withholding agents may be selected for examination of their Chapter 3 and Chapter 4 withholding and reporting obligations. Keep your documentation (Forms W-8, records supporting income determinations, withholding calculations) for at least three years. IRS.gov About Form 1042-S

FAQs

Q1: I'm an individual who occasionally pays rent to a foreign person. Do I need to file Form 1042-S?

It depends. If you're not making the payment as part of your trade or business and no withholding is required, you don't need to file. However, if withholding was required (even if you didn't actually withhold), you must report the payment and obtain an EIN—you cannot use your SSN for Form 1042-S purposes.

Q2: What's the difference between Form 1042-S and Form 1042?

Form 1042-S is an information return (like Form 1099) reporting individual payments to specific recipients. Form 1042 is the tax return summarizing all withholding for the year. Think of it this way: Forms 1042-S provide the details, while Form 1042 is the summary. You must file both.

Q3: Can I file Form 1042-S on paper if I only have 10 forms to file?

For 2021, yes—unless you're a financial institution, which must always file electronically regardless of volume. Other withholding agents can file on paper if submitting fewer than 250 forms. However, the IRS encourages everyone to file electronically. Note: this threshold is expected to drop to 10 forms for future years.

Q4: The foreign recipient never provided a TIN. What do I do?

Report the payment anyway, but withhold at 30% (the maximum rate) unless an exception applies. Enter "Unknown Recipient" in the recipient name field if you lack documentation. You still have a reporting obligation even with incomplete recipient information.

Q5: How do penalties work if I file late or incorrectly?

Penalties vary by how late you file: $50 per form (up to $588,500) if you file within 30 days after the due date; $110 per form (up to $1,766,000) if you file after 30 days but by August 1; or $290 per form (up to $3,532,500) if you file after August 1 or don't file at all. Separate penalties apply for failure to furnish recipient copies. Small businesses (average annual gross receipts of $5 million or less) have reduced maximum penalties. Penalties are adjusted annually for inflation.

Q6: What if I discover an error months after filing?

File an amended Form 1042-S as soon as you discover the error. Use the same unique form identifier as the original, check the "Amended" box, and enter "1" in the amendment number field. Also verify whether you need to amend the related Form 1042. Don't delay—the longer you wait, the harder it is to establish reasonable cause if penalties are assessed.

Q7: Do I need to report payments to foreign corporations the same way as payments to foreign individuals?

Yes, with some differences in the information fields. Foreign corporations don't need a date of birth reported, for example. But the core principle remains: all U.S.-source FDAP income paid to foreign persons (whether individuals or entities) must be reported on Form 1042-S. There are no exempt recipient categories like there are for Form 1099 reporting. IRS.gov Understanding Form 1042-S

Need More Help?

Visit IRS.gov/Form1042S for the latest updates, instructions, and the Form 1042-S Data Integrity Tool—free software that checks your data for errors before submission. For tax law questions, call 267-941-1000. For technical filing assistance, contact the Information Reporting Program at 866-455-7438.