Final 2014 Form 1042 Released – Major Changes for FATCA Withholding

Final 2014 Form 1042 Released – Major Changes for FATCA Withholding

Under Chapter 3 of the Code, there are reporting and withholding requirements relating to payments of certain U.S. source income to non-U.S. persons. Any withholding agent or intermediary who receives, controls, has custody of, disposes of, or pays a withholdable payment must file an annual withholding tax return for U.S. source income of foreign persons for the preceding tax year. These payments include any fixed or determinable annual or periodic (FDAP) income (an example would be dividend income on the stock of a U.S. company).

Effective on or after July 1, 2014, Chapter 4 of the Code requires withholding agents to now withhold 30% of certain withholdable payments to a foreign financial institution (FFI) unless the FFI has already entered into an agreement with the IRS to disclose certain information to the IRS with respect to accounts held by U.S. taxpayers. Additional circumstances for which Form 1042 must be filed include reporting payments and amounts withheld under FATCA, reporting a recipient tax withheld by the taxpayer’s withholding agent on Form 1042-S, and reporting a claim for a collective refund under a qualifying agreement with the IRS.

Changes to the 2014 form include additional lines to show how the taxpayer arrives at gross income, total tax withheld and net tax liability. There is also an additional section (Section 2) added to the form that provides for a reconciliation of payments of U.S. source FDAP income. Although this section will be optional for 2014, it will be required in future years for FATCA withholding agents. Section 3 of Form 1042 (also new in 2014) provides a check box to indicate whether the taxpayer is a dealer or trader in notional principal contracts or other derivative contracts that reference one or more U.S. securities that made payments on such contracts during the current year.

The IRS has recognized its early issuance of the 2014 Form 1042 in an effort to provide as much time as possible for withholding agents and intermediaries to implement the new FATCA requirements. At this time, the 2014 Form 1042 is for informational purposes only and should not be filed until 2015.

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If you have any questions about this World Business & Tax Update, please contact your WithumSmith+Brown professional, a member of WS+B’s International Services Group or email us at [email protected].

Kimberlee Phelan, CPA, MBA
Practice Leader, International Services Group
609.520.1188
[email protected]

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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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