In most cases, non-resident aliens who earn an income in the U.S. are subject to the United States taxes. The tax can be in the form of received income or any other type of payment. Form 1042-S, the U.S. Source Income Subject to Foreign Persons Withholding, is employed to report tax paid to foreign persons by a United States based business or institution. The tax applies to foreign partnerships, non-resident aliens, foreign corporations, foreign trusts, and foreign estates that are subject to income tax withholding.
The Form 1042-S reports amounts reserved under Chapter 3 or 4. Also, the amounts that were withheld are returned to the payee. If no amount has been deducted from the wage due to a taxation exception or treaty, then also Form 1042-S is employed.
Type of 1042-S Income Reported
Every kind of received income requires a separate 1042-S form. Some of the income reported include:
- Scholarships
- Royalties
- Income from real estate
- Allowances paid by American corporations
- Gambling winnings
- Pension income
- Normal income
- Insurance premiums
- Payment for personal services performed in the United States
- Interest on deposits
Who Must File Form 1042-S?
Any withholding agency (a person or institution, like any organization, business, or university) that paid an amount subjected to withholding to a foreign alien must submit a Form 1042-S. The form is filed with the IRS, and a copy of the form is sent to the organization or employee.
A separate Form 1042-S is needed for:
- Every recipient (whether or not they withheld tax)
- Every kind of income paid to the same recipient
- Every tax rate for a specific type of income given to the same recipient
IRS Form 1042-S can be filed electronically or on paper. Electronic filing is needed if there are 250 or more forms of the withholding agent.
Many times a 1042-S is issued for informational purposes, like when sent to resident aliens. In such a case, The form does not need to be incorporated on the return. If the amounts in U.S. Federal Tax Withheld (Box 7) and Withholding Credit (Box 10) of the form are zero, then the Form 1042-S is only for informational purposes. Tax laws can be difficult and complicated, particularly for those who are not residents of the United States.
Conclusion
Form 1042-S is only concerned with returns made to foreign persons. If you are still uncertain about which forms to file, attend the Compliance Prime webinar.
