Form 1042-S for 2023 -
A Quick Guide
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Form 1042-S: An Overview
Updated on February 07, 2024 - 10:30 AM by Admin, TaxBandits
Form 1042-S, titled "Foreign Person's U.S. Source Income Subject to Withholding," is an important IRS document specifically designed to report income paid to foreign individuals or entities. The primary purpose of Form 1042-S is to report various types of income subject to withholding.
Here, is a detailed overview of Form 1042-S, including who must file, the type of payments it reports, and more.
Table of Content:
- What is Form 1042-S?
- Who Needs to File Form 1042-S?
- What are the New Changes to Form 1042-S for the 2023 Tax Year?
- What Information is Reported on Form 1042-S?
- What are the Different Copies of Form 1042-S?
- What Types of Payments are Reported on Form 1042-S?
- When is Form 1042-S Due for the 2023 Tax Year?
- What are the penalties for not filing Form 1042-S on time?
- How Do I File Form 1042-S for 2023?
1. What is Form 1042-S?
Form 1042-S is an IRS information return that reports amounts paid to foreign persons by a U.S.-based business or institution. This form applies to non-resident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts subject to income tax withholding.
2. Who Needs to File Form 1042-S?
Every withholding agent (any U.S. or foreign person) who pays any amount subject to withholding to a foreign person must submit a Form 1042-S. Generally, the withholding agent may include U.S. individuals, businesses, financial institutions, or other entities making payments to non-U.S. residents.
The payer must also file 1042-S even if they did not withhold tax because the income was exempt from tax under a U.S. tax treaty or other exemption that is effectively connected with the conduct of a trade or business in the United States.
3. What are the New Changes to Form 1042-S for the 2023 Tax Year?
The Form 1042-S has specific new changes for the 2023 tax year, which includes:
Code Changes for Form 1042-S:
- Income code 57 was added to the 2022 Form 1042-S for use by brokers (starting in 2023) to report amounts realized and related withholding from transfers of PTP interests for purposes that are subject to reporting on Form 1042-S under Regulations section 1.1461-1(c)(2)(i).
- The 2023 Form 1042-S adds new income code 58 for nominees to report when they cannot determine the characterization of income associated with a publicly traded partnership (PTP) distribution. Therefore, apply Reg. section 1446-4(d)(1) to withhold the distribution without a qualified notice specifying the income attributable to the distribution. Forms 1042-S, which record the new income code 58, must be provided for each PTP making the distribution.
- The 2023 form also has a new chapter 3 status code 39 (Disclosing QI), which applies when a broker, PTP, or nominee pays an amount realized or a PTP dividend to a QI acting as a disclosing QI.
- Revised reporting concerning territory financial institutions- The Chapter 3 status codes for withholding agents making payments subject to Chapter 3 withholding to territory financial institutions (FIs) have been removed. Chapter 3 status codes 03 and 04 for territory FIs treated as or not treated as U.S. persons. Chapter 3 exemption code (code 09) for payments made to territory FIs treated as U.S. persons.
E-filing Threshold Reduction:
The e-filing threshold reduction for several forms, including Form 1042-S, has been reduced. The threshold was reduced from 250 or more returns to 10 or more aggregate returns. This modification takes effect for returns filed on or after January 1, 2024.
4. What Information is Reported on Form 1042-S?
Form 1042-S generally consists of the essential information about the payments made to the foreign person or entity. Form 1042-S should be filed regardless of whether tax is withheld or not. The information on the form includes:
- Payers Information: Name, Address, Tax identification number, GIIN Number
- Recipient Information: Name, Address, Tax identification number, GIIN Number
- Income Information: This requires the income code that classifies the payment type.
- Withholding Information: This determines the amount of tax to be withheld from payments made to nonresident aliens.
- Withholding agent information: Name, EIN, GIIN
- Primary Withholding Agent information: Name (If applicable), EIN
- Intermediary or flow-through entity information: Name, GIN, EIN (if any)
- State Withholding Information
5. What are the Different Copies of Form 1042-S?
Form 1042-S has several different copies, each serving a specific purpose. Here's an overview of each copy and
its purpose.
| Copy A - Internal Revenue Service | Copy B - Should be furnished to the recipients |
| Copy C - Recipients can attach this copy to their federal tax return | Copy D - Recipients can attach this copy to their state tax return |
6. What Types of Payments are Reported on Form 1042-S?
Withholding agents utilize Form 1042-S to report payments made to non-U.S. residents, including:
- Scholarship and fellowship
- Rents
- Corporate distributions
- Royalties
- Gambling Winnings
- Interest on Deposits
- Compensation for personal services performed in the U.S.
- Effectively connected income (ECI)
- Notional principal contract income
- REMIC excess inclusions
- Insurance premiums
- Other types of payments include foreign-targeted registered obligations and guarantees of indebtedness. etc.
7. When is Form 1042-S Due for the 2023 Tax Year?
The due date for U.S. withholding agents to file Form 1042-S with the IRS and furnish the recipient copy is March 15, 2024.
If withholding agents need more time to file Form 1042-S, they can request a 30-day extension by filing Form 8809. It is important to note that failure to file Form 1042-S by the deadline or not requesting an extension may result in penalties.
8. What are the penalties for not filing Form 1042-S on time?
If the withholding agent fails to file Form 1042-S by the deadline or files with incorrect data, they can be penalized up from $60 to $310 per form. The penalty amount depends on the time elapsed between the deadline and when the form is filed. The annual maximum penalties differ depending on the size of the business, and all penalty amounts may change year by year. Learn more about the penalties in detail here.
9. How Do I File Form 1042-S for 2023?
Form 1042-S can be filed either on paper or electronically. However, as mentioned earlier, the IRS mandates e-filing when 10 or more returns are filed.
TaxBandits, an IRS-authorized e-file provider, helps you E-file Form 1042-S with the IRS efficiently and furnish the recipient copies through Online Access or Postal Mailing.
Follow these simple steps to File Form 1042-S.
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Step 1: Create an account & Choose Form 1042-S
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Step 2: Enter 1042-S Form Information
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Step 3: Review and Transmit 1042-S to IRS
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Step 4: Distribute Recipient Copies ( Postal/Online)
Are you ready to begin Filing the 1042-S Form? File in minutes with TaxBandits
Common 1042-S Scenarios
I'm a foreign student studying at a university in the United States. Do I need to worry about any tax forms?
Certainly, if your university pays you any income subject to withholding according to U.S. tax laws, they will provide you with a Form 1042-S. This encompasses various payments like scholarships, stipends, or wages earned through on-campus employment.
I received a scholarship from my university. Will I get a Form 1042-S for that?
Whether a scholarship is taxable depends on how it's used. Spending any part of the scholarship on things other than qualified tuition and related expenses, like room and board, might be taxable. In such cases, it will be reported on Form 1042-S.
I worked as a research assistant at my university. Will I receive a Form 1042-S for my wages?
Yes, if you're a nonresident alien for tax purposes, the wages you earned from on-campus work will probably be subject to withholding, which will be reported on Form 1042-S.
I am a foreign student at a university in the U.S., working part-time for my department and receiving monthly scholarship payments. Do I receive a W-2 for these payments?
The university will issue a W-2 and/or Form 1042-S. If you have an unlimited tax treaty, and no taxes are taken from your paychecks, you get only a 1042-S. If your tax treaty has a limit, and your earnings surpass that limit with taxes withheld, you get both a W-2 and a 1042-S. Without a tax treaty, all your wages go on a W-2. Scholarship payments are on a 1042-S, not a W-2.
I'm an international student and received a grant for my research project. Will that be reported on Form 1042-S?
Yes, grants provided to nonresident aliens for research or academic purposes are generally considered taxable income and will be reported on Form 1042-S.
I'm a foreign student and received royalties for a book I published while studying in the U.S. Will I get a Form 1042-S for that?
Yes, nonresident aliens' earning royalties from U.S. sources are subject to withholding and will be reported on Form 1042-S.
I'm a foreign student who gave a talk at my institution, for which I received an honorarium. Do I have to worry about taxes on that income?
Yes, if you're a foreign student and received payment for giving a lecture at your university (honorarium), you should be aware of taxes. Generally, the wages you earn for providing services in the U.S. (like giving a lecture) will have taxes taken out, and this income will be reported on Form 1042-S.
I come from a country that has a tax treaty with the United States. Does this affect my tax filing as a foreign student?
Certainly, yes, tax treaties can affect the taxation of certain types of income for foreign students. However, you may still receive a Form 1042-S reporting the income, and any applicable treaty benefits would be applied to reduce or eliminate the withholding tax.