Form 1042-S: Information, Deadlines, Extensions, Penalties

Form 1042-S (Foreign Person's U.S. Source Income Subject to Withholding) is used to report income and investment earnings generated in the United States to the Internal Revenue Service (IRS) and to the person or company that received the payment.

This tax form lists the amounts that US institutions or companies paid to foreign persons and that are subject to income tax withholding. This applies to foreign companies as well as partnerships, estates, trusts and other groups based abroad that earn income in the USA.

Form 1042-S must show the amounts withheld under Chapter 3 or Chapter 4, as well as any amounts already refunded. Even if nothing was withheld because of a treaty or an exemption, the form still has to be used. Keep in mind that each type of income needs its own Form 1042-S. This includes, for example, royalties, scholarships, dividends from US companies, income from real property, pension income, gambling winnings, ordinary income (in some cases), interest on deposits, compensation for personal services performed in the USA and insurance premiums. Form 1042-S can be filed on paper or electronically.

Withholding agents must file Forms 1042-S with the IRS (Internal Revenue Service) by March 15 every year. If that date falls on a holiday, the deadline moves to the next business day. You can also request an extension using Form 8809, which itself must be submitted before the Form 1042-S deadline.

Be aware that filing late, or not filing at all, can have consequences. The IRS provides a wide range of resources to help taxpayers meet their deadlines and avoid penalties.

When it comes to taxes, the IRS does not mess around. If you file up to 30 days late, you pay $50 per form. If the form is filed between 30 days after the due date and August 1 of the reporting year, the penalty rises to $110 per form. Any form filed after August 1 of the reporting year carries a penalty of $290. If the form is not furnished to the recipient on time and there is no reasonable cause, a penalty of up to $290 per form can apply here too. So plan ahead to avoid trouble.

All of the cases above come with limits. Even in the best case (filing within 30 days, small business), the annual cap is $206,000. However, there is no cap on the penalty for intentionally disregarding the deadlines. Intentional failures trigger additional penalties that are far from trivial: either $580 or 10% of the amounts to be reported, whichever is higher.

The form covers all payments of US taxable income you received in the previous calendar year. It does not show your total gross income, only your US income, because only that is reportable to the IRS and may be taxable in the USA. So if you use Form 1042-S for your tax return at home, it gives you only your US income and the amounts withheld, not a complete picture of your total income. Also note that the form records amounts by the actual payment date, not by when the income was earned. If your income was earned in December 2019 but paid out in January 2020, it will appear on your Form 1042-S for 2020. It is very important that every part of the form is filled in completely.

Sounds complicated? Don't worry: Mount Bonnell Advisors can help you with all the forms, whether it's Form 1042-S or Form 8809 for the extension. Our pages on IRS W-8 forms and the US tax return are also a good introduction to withholding tax. Get in touch today through our contact form and avoid costly mistakes.

Consultation & implementation

If you'd like to find out what this means for your own situation, the best step is to book a consultation.