Form 1042-S is sent to non-U.S. residents who have income in the U.S. Income is from U.S.-based entities. This income includes distributions from real estate properties or funds. A Form 1042-S must be filed for each type of income reported.
Form 1042-S is titled Foreign Person's U.S. Source Income Subject to Withholding. In this article, we’ll go through what the various fields in Form 1042-S mean.
Who Files Form 1042-S?
Foreign entities that are subject to tax withholding include:
- Non-resident aliens
- Foreign partnerships
- Foreign corporations
- Foreign estates
- Foreign trusts
The following income types are applicable to Form 1042-S. This list is not exhaustive.
- Interest on deposits
- Pension income
- Income from real estate
- Gambling winnings
- Insurance premiums
- Wage income
- Compensation for personal services performed in the U.S.
- Dividends paid by American corporations
Components of Form 1042-S
Form 1042-S is a multi-page document. The form is repetitive because there are five copies labeled A thru E. Each copy goes to a different entity:
- Copy A — Internal Revenue Service
- Copy B — Recipient
- Copy C — Recipient (Attach to any Federal tax return you file)
- Copy D — Recipient (Attach to any state tax return you file)
- Copy E — Withholding Agent
Filling In Form 1042-S
Form 1042-S is divided down the middle. The left side contains fields 1 thru 13d. The right side contains 13e thru 17c. Not all fields are listed below. Please note that the comments below are not exhaustive or applicable to all situations of each field. For more thorough comments on each field, please see the Form 1042-S instructions.
1.Income Code — The income code can be found on page 2 of the form or Appendix A of the instructions. Specific to real estate investors is code 02: Interest paid on real property mortgages or code 09 for capital gains.
2.Gross Income — Self explanatory. Includes any withheld tax.
5.Withholding Allowance — This only needs to be reported if the income code in box 1 is one of the following: 16 (scholarship or fellowship grants), 17 (compensation for independent personal services), 18 (compensation for dependent personal services), 19 (compensation for teaching), 20 (compensation during studying and training), or 42 (earnings as an artist or athlete-no central withholding agreement).
6.Net Income — Complete only if there is an amount in box 5. Otherwise, this field remains blank.
7a. Federal Tax Withheld — Federal tax withheld under chapter 3 or 4 (i.e., box 3). Else enter in “-0-.” Must be filled in even if no taxes were withheld.
7b. — For taxes withheld during the year but not deposited with the IRS. This field is used when escrow procedures are applied.
7c. — Applies to partnerships that received an amount subject to withholding during the 2021 calendar year (preceding year), and you are withholding on the amount includible in a foreign partner's share after March 15 of the subsequent year (2022). Only used if a deposit was designated as attributable to the preceding year (2021).
9.— Used only under specific repayment conditions (see form instructions). In the majority of cases, an intermediary or flow-through entity will not enter anything in for this field.
The remaining fields are contact and identifying information. The Global intermediary identification number (GIIN) is assigned to the FFI or other entity for chapter 4 reporting purposes. An FFI is a foreign financial institution.
Form 1042-S may be mailed directly to the recipient. Recipients of this form should work with their accountant or finance team when processing the form with their taxes.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.