Line by Line IRS Form 1042 Instructions for 2023
Updated on March 12, 2024 - 10:30 AM by Admin, TaxBandits
Form 1042 is an IRS form used for reporting tax withheld on certain income paid to foreign persons, including non-resident aliens, foreign corporations, and other non-U.S. entities. You must file Form 1042 with the IRS on or before March 15th annually. To file Form 1042 for the 2023 tax year, one must be familiar with the instructions of Form 1042.
Here are the step-by-step instructions to fill out Form 1042.
Table of Content:
1. How to fill out Form 1042 for 2023?
Filling out 1042 Form with the IRS is quite simple and straightforward. Here’s a breakdown of each box in IRS Form 1042 along with instructions on how to fill out each one.
Complete the Withholding Agent Information
The IRS requires the Withholding Agent information on Form 1042:
Name
- Enter the name of the Withholding Agent on Form 1042
Employer Identification Number:
- If you are filling out Form 1042, you need to provide your Employer Identification Number (EIN). If you are a Qualified Intermediary (QI), Withholding Foreign Partnership (WP), or Withholding Foreign Trust (WT), use the specific QI-EIN, WP-EIN, or WT-EIN. If you are a Qualified Securities Lender (QSL) and also a QI, use your QI-EIN. Otherwise, use the EIN assigned to you.
- If you are a Participating Foreign Financial Institution (PFFI) or another financial institution with a Global Intermediary Identification Number (GIIN) for Chapter 4 reporting, you still need to obtain an EIN to complete Form 1042. Use your existing EIN, like the QI-EIN for a QI.
- If you are a PFFI or another financial institution submitting this form for a branch outside the U.S., don't use the EIN of your U.S. branch. Instead, get a separate EIN for filing on behalf of all your non-U.S. branches.
Address
- Enter the Street, City or town, country, and zip or foreign postal code of the withholding agent.
Chapter 3 and 4 status codes of withholding agent:
- Enter the Chapter 3 and 4 status codes from the "Type of Recipient, Withholding Agent, Payer, or Intermediary Code" list on Form 1042-S.
- You must include both the Chapter 3 and Chapter 4 withholding agent status codes, regardless of the kind of payment made.
Section 1: Record of Federal Tax Liability
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Lines 1 - 60 :
Enter the withholding agent's federal tax liability record for each quarter-monthly period, totaling liabilities for specified periods on lines 64b-64d.
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Line 61:
Enter the number of 1042-S Forms filed either on paper or electronically for the 2023 tax year.
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Line 62 :
Enter the amounts reported on all Forms 1042-S for the year, whether they were submitted electronically or on paper. Also, include amounts from all Forms 1000, and Ownership Certificate. Make sure to compare the amounts on Form 1042 with those on Form 1042-S (including electronically filed ones) to prevent unnecessary communication with the IRS.
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Line 62a:
Enter the total of all amounts in box 2 of Form 1042-S that represent payments of U.S. source Fixed, Determinable, Annual, Periodical (FDAP) income
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Line 62b: The amount on:
- Line 62b(1) should be the total of all amounts in box 2 of Form 1042-S that are U.S. source substitute dividend payments.
- The amount on line 62b(2) should be the total of all amounts in box 2 of Form 1042-S that are U.S. source substitute payments, excluding substitute dividend payments.
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Line 62c:
Enter the total of all U.S. source FDAP income amounts in box 2 of Form 1042-S and all gross interest amounts reported on Form 1000.
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Line 62d:
Enter the total gross amounts of U.S. source FDAP income that need to be reported on Forms 1000 and Forms 1042-S. This is necessary if the total gross amounts differ from what was reported on Forms 1000 and Forms 1042-S (as shown on line 62c).
Total Tax Reported as Withheld or Paid (Lines 63a to 63e)
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Lines 63a through 63e:
Enter for each line the amounts reported for all Forms 1042-S and Forms 1000, regardless of the filing method.
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Line 63a:
Enter the amounts withheld by the withholding agent before any changes indicated on lines 63c(1) and 63c(2).
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Line 63c(1):
Enter the amounts you repaid to the beneficial owner or payee in the year after the calendar year due to over-withholding. Make sure to report these amounts as a deduction on line 59, reducing the tax liability.
Note:The total on line 63c(1) should match the sum of all amounts reported in box 9 of the corresponding Forms 1042-S.
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Line 63c(2):
Report the amounts you withheld in the year after the calendar year from future payments made to a beneficial owner or from other property or additional contributions controlled by the beneficial owner. Also, include any other amounts withheld in the year following the calendar year when the related payments were made (as allowed under applicable regulations in Chapter 3 or 4).
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Line 63d:
Enter the amount you paid from your funds rather than withholding from the recipient's payment. The amount on line 63d should be Equal to the sum of all amounts recorded in box 11 on all Forms 1042-S sent to recipients.
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Line 63e:
Enter the total tax that was withheld or paid, the amount entered on line 63e equals the total sum of lines 63(a-d).
Computation of Tax Due or Overpayment
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Line 64a:
Report any adjustments to total net tax liability. This amount must not be included in the Record of Federal Tax Liability (lines 1 through 60).
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Lines 64b and 64c:
Combine the amounts from the Record of Federal Tax Liability (lines 5, 10, 15, 20, 25, 30, 35, 40, 45, 50, 55, and 60) related to liability under chapter 3 (line 64b) and chapter 4 (line 64c). Exclude amounts from lines 64a and 64d. No other adjustments should be made to these lines.
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Line 64d:
Enter the amounts from the Record of Federal Tax Liability linked to liability for specified federal procurement payments under section 5000C on line 64d.
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Line 64e:
Enter an amount that should match the sum of lines 64a through 64d.
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Line 65:
Report total tax deposits for the year, including extension. Enter deposits of tax withheld during the calendar year on line 65a and those deposits of tax withheld in the following year on line 65b.
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Line 66:
Enter any overpayment from the 2022 Form 1042 applied as a credit on the 2023 Form 1042.
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Line 67:
On lines 64b and 64c, deduct taxes withheld by other agents from total tax liabilities, including taxes withheld by a U.S. agent under Chapter 3.
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Line 70a and 70b:
Keep track of excess payments for excise taxes on some federal procurement payments (70b) and withheld taxes (70a), but do not include overpayments from amounts withheld directly from the beneficial owner.
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Line 71:
You can ask for a refund or credit for any excess payment (the total of lines 70a and 70b). Choose the correct box on line 71 to indicate whether you're requesting a refund or a credit. If you choose a credit, it can lower the amount you need to deposit for withheld tax in 2024. Please note that if you reimbursed the recipient for overpaid amounts after 2023, you cannot request a refund for that amount on Form 1042. Instead, specify on line 71 that you're asking for a credit for the 2024 calendar year.
Section 2: Reconciliation of Payments of U.S. Source FDAP Income
This section is to reconcile the U.S. source income reported under Chapter 4, which was paid during the year, with the total U.S. source income reported on all Forms 1042-S filed for the same year. This includes amounts reported under both Chapter 3 and Chapter 4.
Note:You need to fill out this section even if you didn't make any payments subject to Chapter 4 withholding during the year.
Here’s the breakdown of Lines 1 to 6 of Reconciliation of Payments of U.S. Source FDAP Income:
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Line 1:
Enter the amounts of U.S. income that must be withheld under Chapter 4, including amounts withheld for which no deposit has been made using an escrow procedure.
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Line 2:
Enter the amounts of U.S. income not required to be withheld under Chapter 4. Fill in lines 2a to 2d based on the exceptions to withholding for each payment on Form 1042-S. The total on line 2e should match the sum of lines 2a to 2d.
- Line 2a: Enter the amounts of U.S. income subject to withholding, but the withholding agent has documentation showing a Chapter 4 status that doesn't require withholding (e.g., PFFI).
- Line 2b: Enter the amounts of U.S. income not subject to withholding because they are nonfinancial payments (e.g., royalties, services, rents).
- Line 2c: Enter the amounts of U.S. income not subject to withholSectioncause they are related to grandfathered obligations (e.g., obligations outstanding on July 1, 2014).
- Line 2d: Enter the amounts of U.S. income not subject to withholding because they are payments of effectively connected income (ECI).
- Line 2e: Add up all amounts of U.S. income that must be reported on Form 1042 but are not required to be withheld under chapter 4 (sum of lines 2a to 2d).
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Line 4:
Add up all amounts in box 2 of Form 1042-S representing payments of U.S. income (including both chapter 3 and chapter 4). The total on line 4 should match the total gross amounts of U.S. income reported on line 62c.
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Line 5:
Line 5 should be the total on line 4 (total U.S. income reported on all Forms 1042-S) minus the total on line 3 (total U.S. income reportable under chapter 4).
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Line 6:
If the amount on line 5 is not zero, use this line to explain the difference. If you need more space, attach a separate sheet to Form 1042 explaining the variance noted on line 5.
Section 3: Potential Section 871(m) Transactions
If you make payments connected to certain financial transactions outlined in Section 871(m) during the year, check the box. These transactions typically involve contracts like notional principal contracts or derivative contracts related to U.S. stocks or underlying securities.
Define-Section 871(m)
Section 871(m) of the U.S. Internal Revenue Code (IRC) addresses the taxation of certain payments on financial instruments deemed to be "dividend equivalents." This section specifically focuses on non-U.S. persons (foreign persons or entities) and aims to prevent the avoidance of tax on U.S. dividends through the use of derivative instruments or financial contracts.
Section 4: Dividend Equivalent Payments by a Qualified Derivatives Dealer (QDD)
If any qualified intermediary (QI), including the main office or any branch, acted as a Qualified Derivatives Dealer (QDD) during the tax year, mark the box. Enter the QI's standard Employer Identification Number (EIN) (not the QI-EIN) in the space given, and attach Schedule(s) Q (Form 1042) for each QDD. Even if a QDD has no tax liability, you must complete and attach Schedule(s) Q (form 1042).
2. When is Form 1042 due for the 2023 Tax Year?
The due date for filing Form 1042 with the IRS for the 2023 tax year is March 15, 2024. Failure to file Form 1042 by the deadline or to request an extension may result in penalties.
Note: If the Form 1042 due date falls on a Federal holiday or weekend, the next business day will be the due date.
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3. How to file Form 1042 Electronically?
The IRS accepts Form 1042 filing both on paper and online. Despite the recent delay in Form 1042's e-filing requirement, the IRS continues to advocate electronic filing as a more convenient and secure approach. Here’s where TaxBandits comes in!
TaxBandits, an IRS-authorized e-file service, allows you to File 1042 electronically with the IRS and receive instant status updates on your Form 1042 returns.
Complete your Form 1042 by following these simple steps:
- Step 1: Create a Free Account & Choose Form 1042
- Step 2: Enter the Required Form 1042 Information
- Step 3: E-Sign using Form 8453-WH
- Step 4: Review and Transmit to the IRS