Form 1042, 1042-S, & 1042-T Compliance Rules & Distinctions

Form 1042

Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, is the form used to report tax withheld on certain income of foreign persons.

All domestic or foreign withholding agents (e.g., partnership, corporation, individual, etc.) or custodian/broker who receives, controls, has custody of, disposes of, or pays a withholdable payment, must file Form 1042 with the IRS.

Withholdable payments include, but are not limited to, dividends, interest, compensation, and royalties.

Form 1042-S & 1042-T

Whereas Form 1042 is used to report tax withheld on certain income of foreign persons, Form 1042-S Foreign Person's U.S. Source Income Subject to Withholding, deals with payments made to foreign persons. For example, if you have a client who employs or otherwise pays nonresident aliens, that client must file Form 1042-S with the IRS for each nonresident client they employ. A copy of that form must also be sent to the nonresident alien employee. When filing Form 1042-S, it should be filed together with Form 1042-T.

Form 1042-T is a simple one-page summary of Forms 1042-S. It is used to transmit Forms 1042-S to the IRS.

Due Dates, Extension Differences & Penalties

Forms 1042, 1042-S, and 1042-T are due 2.5 months following the close of the taxpayer’s year end (March 15 for calendar year taxpayers).

Form 1042 can be extended for six (6) months using Form 7004. Penalties are 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax.

Form 1042-S & 1042-T can only be extended for one (1) month using Form 8809. A penalty of up to $310 each (for filing year 2024) may be imposed for each failure to furnish Form 1042-S to the recipient when due.

If you have inquiries about this guidance and/or the related regulations, please contact any member of the International Tax team at FGMK.

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