Form 1042-S

Most non-US citizens who receive income from the United States owe taxes here. The Foreign Person's US Source Income Subject to Withholding (Form 1042-S) is how these non-US citizens report their US-source income to the federal authorities. 

To Whom Does It Apply

People and entities from the following categories use Form 1042-S to report their US-source income:

• Non-resident aliens
• Foreign partnerships
• Foreign corporations
• Foreign estates
• Foreign trusts

All of these are subject to income tax withholding.

The form contains information about earnings withheld under Chapters 3 and 4. Form 1042-S is required even in cases when there haven't been any deductions from the payment due to a treaty or another taxation exemption. 

How to File Form 1042-S

One crucial detail is that each type of earnings requires the non-resident person or entity to file a separate Form 1042-S. These include scholarships, royalties, dividends paid by American corporations, pension income, gambling winning, interests on deposits, insurance premiums, and more. In some cases, normal income such as salaries and hourly wages require a Form 1042-S. Compensation for services rendered on a contractual basis is no exception, as well. 

The IRS maintains a comprehensive set of instructions on how the form is supposed to be filed in each case. 

Who Files Form 1042-S?

It is the responsibility of the employer or entity paying out the dividends to file the form with the IRS. In addition, a copy to the person or business receiving the payment is due. 

The employer is obliged to file a separate Form 1042-S for:

• Every recipient, regardless of whether there have been tax-withholdings.
• Each type of income due to the recipient
• Each tax bracket the different income payments fall into

The employer can choose whether they file Form 1042-S on paper or electronically. The only exception is when there are 250 or more forms due from a single withholding agent. In such a case, all forms must be submitted electronically.

When Does the IRS Send Out Form 1042-S?

All resident aliens can expect to find the form in their mail at some point. The IRS usually sends it out to resident aliens for informational purposes. If the amounts in the US Federal Tax Withheld (Box 7) and Withholding Credit (Box 10) sections of the form are both zero, the person doesn't have to file Form 1042-S.

Resident aliens who receive the form include both people who get regular salary payments and those who have other sources of income. Those might be people who get income from interest and royalties, foreign students and postdoctoral fellows at US universities, teachers, and trainers.

US tax laws can be a bit confusing, though. If a resident alien receives the form but they are not sure whether to file it or not, it is best to consult with a tax lawyer. 

Resident Vs. Non-Resident Aliens

US tax law distinguishes between resident and non-resident aliens for tax purposes. It is always the same as residency according to the immigration law. Residents for tax purposes have to obey the same laws as US citizens. Different rules apply to non-residents for tax purposes. They are the people who Form 1042-S concerns. Note there are further different rules for F-1, J-1 students, and scholars, as well as H-1 employees.

Form 1042 and 1042-S

Even though they sound similar, Form 1042 and Form 1042-S are different.  Employers use the Annual Withholding Tax Return for U.S. Source Income of Foreign Persons (Form 1042) to report tax they withhold from the income of foreign persons or organizations. In other words, Form 1042 deals with the amount of taxable income withheld from foreign individuals. On the other hand, Form 1042-S concentrates on the amount of money these persons or entities have received in full. It is the employer who files Form 1042, while it is left to the discretion of the employee to file Form 1042-S. In addition, the former can be filed with the IRS on its own. The latter requires Form 1042-T attached to it in all cases.