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Reminders When Filing Form 1042-S

Source: IRS, Issue Number:  2024-06

With filing season underway, below are some reminders to help withholding agents avoid common errors that may result in underwithholding and incorrect reporting.

CODES
Use only income, status, exemption, and limitation of benefits codes specifically listed in Instructions for Form 1042-S for the tax year in which you are reporting. The appropriate two-digit codes are provided in Appendix A (for income codes) and Appendix B (for exemption, status, and limitation of benefits codes). You should report the code that most accurately reflects the type of income, status, exemption, and limitation of benefits reportable under the transaction(s). For further explanation of the income and limitation of benefits codes, refer to Publication 515 and Instructions for Form W-8BEN-E, respectively.

Use only the country codes provided in the Foreign country code listing for Modernized e-File for the country for which the recipient is a resident under that country’s tax laws. Do not rely on ISO (International Organization for Standardization) country codes or similar lists when reporting on Form 1042 and Form(s) 1042-S.

  • Only enter “OC” (other country) when the country of residence does not appear on the foreign country code list or the payment is made to an international organization (for example, the United Nations).
  • Do NOT enter “UC” to indicate an unknown country. “UC” is the designated country code for Curacao. If reporting a payment to an “unknown recipient”, the recipient’s country code field should be left blank.
  • If the withholding agent is a U.S. person or a foreign branch of a U.S. person, enter “US” in box 12f (even though “US” is not a code provided in the foreign country list).

IDENTIFICATION NUMBERS
U.S. Taxpayer Identification Number (TIN): You must obtain and enter a recipient’s U.S. TIN (box 13e) unless you meet the criteria for an exemption. If you know the recipient’s TIN or if a foreign person provides a TIN on a Form W-8, but is not required to do so, you must include the TIN on Form 1042-S.

Foreign Taxpayer Identification Number (FTIN): In box 13i, enter the recipient’s FTIN used in the recipient’s country of residence for tax purposes. You must obtain and enter a FTIN for any foreign person claiming a reduced rate of, or exemption from, tax under a tax treaty between a foreign country and the U.S. if such person did not provide a U.S. TIN and the income is not the type for which an exemption from the TIN requirement applies.

Global Intermediary Identification Number (GIIN): You must include a GIIN in box 13h, if you are required to collect a GIIN for the recipient under the requirements for documenting the payee under chapter 4.

UNKNOWN RECIPIENTS
When reporting a payment subject to withholding to Unknown Recipients, ensure that 30% tax is withheld, remitted to the IRS, and reported on Form 1042-S. The recipient’s name should be “Unknown Recipient”, the chapter status code should reflect “Unknown Recipient”, and the recipient country field should be left blank.

EFFECTIVELY CONNECTED INCOME (ECI)
When reporting income that is effectively connected with a U.S. trade or business (i.e., reporting exemption code “01” in box 3a), a recipient’s U.S. TIN is required in box 13e. If the recipient’s U.S. TIN is unknown or unavailable, tax must be withheld at the rate of 30%.

TREATY BENEFITS
When reporting exemption code 04 to report income exempt from withholding pursuant to an income tax treaty, the recipient’s country code reported in box 13b must be a valid treaty country.

Stay informed of changes in tax treaties that may affect reporting and withholding requirements. Countries with whom the U.S. has a tax treaty are listed at United States Income Tax Treaties.

PLEASE NOTE
The information provided is not comprehensive.

You must comply with the requirements in Pub 1187 if you are an electronic filer.

Use only tax rates that are allowed by statute, regulations, or treaty. Do not attempt to “blend” rates. Refer to Instructions for Form 1042-S for guidance.
End of IRS Material.

Zaher Fallahi, Tax Attorney, CPA, assists taxpayers nationwide with their Tax Preparation, Cryptocurrency tax, Gift Tax, Foreign Gifts, IRS Audits, Bank Secrecy Act (BSA), Anti-Money Laundering (AML) issues, FBAR, Undisclosed Foreign Bank Accounts, Streamlined Procedures, and other International Tax Matters. Tel.: (310) 719-1040, (714) 546-4272 and (877) 687-7558 toll free nationwide. Websites: zflegal.com and zfcpa.com E-mail taxattorney@zfcpa.com