IRS Form 1042-S reports taxes withheld from income paid to foreign individuals. In other words, similar to a W-2 that is sent to U.S. residents, the 1042-S is a way that a U.S. source, such as a company, lets nonresidents know that their income was reported to the IRS and they need to file an appropriate tax return.
Who Should File?
The IRS refers to those who file a Form 1042-S as "withholding agents." Commonly this is any U.S. entity that pays income to a foreign person. This can include an individual, corporation, partnership, trust or other entity. This can also include any intermediary who knows withholdings were not originally made on income it received. Because the use of a 1042-S can be confusing, it is helpful to consult a tax professional for more information.
Types of Payments Reported
According to the IRS, a wide variety of payments must be reported on a 1042-S. These can include more than just income paid to a foreign individual. Payments that must be reported include interest on deposits, annuities, rents, royalties, compensation for services, gambling winnings and cancellation of debt.
How Nonresidents Should Respond
A 1042-S is similar to a W-2. The form lets nonresidents know how much money was withheld from their income for taxes. Any individual who receives a 1042-S must file a tax return with the IRS. Sometimes, an individual will qualify for deductions or exemptions and can get a refund on the tax return. Consulting a qualified tax professional can be helpful for making such determinations.
The IRS lists common mistakes made on a 1042-S on its website. These include reporting the wrong type of income, reporting the wrong tax rate or calculating the tax rate incorrectly. Other common errors include data entry mistakes, such as listing a country code that does not match the name of the country written into the form. The 1042-S form itself is available on the IRS website.
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