Reminder! Payments from U.S. Sources to Foreign Persons Triggers Required 1042-S Filings
Form 1042-S is an informational return used by withholding agents to report certain amounts paid to foreign persons during the preceding calendar year.
Generally, amounts subject to 1042-S reporting are amounts from U.S. sources paid to foreign persons that are reportable under Chapter 3 (i.e. payments to nonresident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trust), or Chapter 4 (FATCA). Such reportable amounts include, but are not limited to the following:
- Fixed or determinable annual or periodical (“FDAP”) income (including deposit interest);
- Gains relating to contingent payments received from the sale or exchange of patents, copyrights, and similar intangible property;
- Interest on deposits paid to certain nonresident aliens;
- Interest on deposits subject to chapter 4 withholding;
- Corporate distributions;
- Interest, rents, and royalties;
- Compensation for independent personal services performed in the U.S.;
- Compensation for dependent personal services performed in the U.S. (only if beneficial owner is claiming treaty benefits);
- Annuities, pension distributions, or other deferred income;
- Cancellation of indebtedness; and
- Effectively connected income (“ECI”).
All U.S. financial institutions are required to file Form 1042-S for foreign customers that earn interest on their U.S. accounts, and must file electronically (regardless of the number of forms to file).
A separate Form 1042-S is required for: (i) each recipient, regardless of whether or not tax is withheld on the payment; (ii); each tax rate (if withholding was done at more than one tax rate) on a specific type of income paid to the same recipient; and (iii) each type of income paid to the same recipient.
Generally, Form 1042-S can be filed electronically, or on paper. Withholding agents are required to file electronically if there is 250 or more Forms 1042-S. The electronic submissions are filed using the Filing Information Returns Electronically (FIRE) System.
Forms 1042-S must be filed by March 15 of the year following the calendar year in which the reportable payment was made.
Withholding agents are required to use the Electronic Federal Tax Payment System (EFTPS) to deposit the tax withheld and required to be shown on Form 1042. The amount of tax you are required to withhold determines the frequency of your deposits.
- If at the end of any quarter-monthly period the total amount of undeposited taxes is $2,000 or more, you must deposit the taxes within 3 business days after the end of the quarter-monthly period. (A quarter-monthly period ends on the 7th, 15th, 22nd, and last day of the month.)
- If at the end of any month the total amount of undeposited taxes is at least $200 but less than $2,000, you must deposit the taxes within 15 days after the end of the month.
- If at the end of a calendar year the total amount of undeposited taxes is less than $200, you may either pay the taxes with your Form 1042 or deposit the entire amount by March 15, 2016.
Electronic 1042-S filing software is available. Please note that the 1042-S has increased in complexity and if you have any questions about when reporting is required, payments subject to reporting, or the filing process, please reach out to a member of Withum’s International Services Team at [email protected].
Author: CJ Stroh, Esq. | [email protected]
