A withholding requirement relates to an amount required to be deducted and withheld from the payment of income paid to a foreign person. Withholding agents will report payments to foreign persons of U.S. sourced FDAP income and/or income generally subject to withholding using the Forms:
- Form 1042
- Form 042-S,
- and Form 1042-T
The Form 1042, Annual Withholding Tax Return for U.S. Source income of Foreign Persons, is submitted to the IRS to report the total aggregate of NRA payments, withholdings, and deposits made by the US withholding agent during the year.
A U.S. withholding agent must file a Form 1042 if:
- You are required to file Form 1042-S (whether or not any tax was withheld or was required to be withheld), or
- You pay gross investment income to foreign private foundations that are subject to tax under section 4948(a) of the Code.
What is the Purpose of Form 1042
File only one Form 1042, consolidating all information from the foreign recipient’s Form 1042-S, regardless of the number of different recipients, branches, divisions, or types of income for which you are the withholding agent. The frequency of your deposit requirements are determined by the amount of tax that is required to be withheld. See Publication 515 for the specific rules for the Form 1042, including due dates, which forms to use, electronic deposit requirements, and penalties for failure to make deposits timely.
More Info on Form 1042
Do not attach paper Forms 1042-S with your Form 1042. The Form 1042-S is filed separately with the 1042-T. The Form 1042-S, Foreign Person’s U.S. Source Income subject to withholding, is an information return. It is important to note that there is no minimum amount that triggers the filing requirement for a 1042-S. All payments should be reported. This form is required even if the entire amount of compensation is exempt under a tax treaty.
Use the Form 1042-S to report payments that are:
- exempt under a tax treaty,
- compensation for personal services performed in the US, scholarships, fellowships, grants, or financial aid paid to nonresident aliens that are not a “qualified scholarship,”
- and rents.
What is Form 1042-T?
A separate form is required for each foreign recipient who receives such income. And withholding agents filing paper forms must use a separate Form 1042-S for the specific type of income. Form 1042-T, Annual Summary and Transmittal of Forms 1042-S, should be used to transmit the paper Forms 1042-S to the IRS.