Form 1042: Annual Withholding
Tax Return for U.S. Source Income of Foreign Persons

1. What is Form 1042?

Form 1042 is a U.S. tax form used for reporting tax withheld on certain income paid to foreign persons, including non-resident aliens, foreign corporations, and other foreign entities. The purpose of Form 1042 is to report withhold taxes on certain types of income that are subject to withholding under U.S. tax laws.

2. What is Form 1042 used for?

Form 1042 is an annual withholding tax return for U.S. source income of foreign persons. It’s used to report the tax withheld on certain income of foreign persons, including nonresident aliens, (foreign) partnerships, corporations, estates, and trusts. It’s also used to report the tax withheld under Chapter 4 on withholdable payments and the tax withheld under Section 5000C on specified federal procurement payments. In addition, it’s used to report payments that are reported on Form 1042-S under Chapters 3 or 4.

3. Who must file Form 1042?

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

According to the IRS, every withholding agent or intermediary who receives, controls, has custody of, disposes of, or pays a withholdable payment or amount subject to withholding must file Form 1042 with the IRS. Form 1042 is solely filed with the IRS and isn't sent to payees.

Each has specific roles and responsibilities outlined in these IRS regulations.

4. What are the updates in Form 1042 for the 2023 Tax Year?

The following updates have been made to Form 1042 for the 2023 tax year:

5. What do chapter 3 or chapter 4 codes apply in Form 1042?

Withholding agents must enter both a Chapter 3 and a Chapter 4 withholding agent status code, regardless of the kind of payment made. Withholding agents should use the code that corresponds to your current status.

6. What is Tax Liability and how to fill it in Section 1 of Form 1042?

Record of Federal Tax Liability (Lines 1–60)

These lines show the tax you owe when the income was paid or collected for each quarter-monthly period, under Chapter 3 or 4. This is true regardless of whether the withholding agent handled the responsibility through withholding or paid it directly. Do not use negative numbers on these lines.

OnIf you are required to report a reduction in liability on line 59 (due to a repayment made under the reimbursement or set-off procedure), and this results in a negative amount of tax liability for the period corresponding to line 59, you should instead report any negative amount for the next earlier period(s), so that no negative amounts are reported on lines 1 through 60.

7. How do you E-Sign your Form 1042?

The IRS accepts a wide range of electronic signatures. An electronic signature is a way to get approval on electronic documents. You can e-sign your 1042 Form with the IRS through Form 8453-WH, E-file Declaration for Form 1042. This form is used to:

• Authorize an electronic Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.
• If not filing using an Electronic Return Originator(ERO), allow the Intermediate Service Provider (ISP) to transmit the 1042 Form through a third-party transmitter.
• Provide consent to authorize the electronic funds withdrawal to pay the balance due on Form 1042.

8. When is Form 1042 due?

The Form 1042 filing deadline 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 deadline falls on a Saturday, Sunday, or legal holiday, it will be the next business day.

9. Can you get an Extension from filing your Form 1042?

Yes Absolutely! you can get additional time to file 1042 to the IRS, by requesting an extension for up to 6 months by filing Form 7004. Please note that this extension is granted for filing purposes only and does not affect the deadline for paying any taxes owed to the IRS.

10. What is the penalty if you haven’t filed your 1042 Form on time?

Form 1042 must be filed on time or face penalties. Form 1042 Penalties range from 5% to 25% of the unpaid tax for each month or partial month when the return is overdue. This penalty can accumulate over time, but it is limited to 25% of the unpaid tax. As a result, potential penalties increase with the length of the delay and possibly reaching a quarter of the unpaid tax amount.