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What’s new with IRS Form 1042-S for tax year 2014?

A lot is new!

IRS Form 1042-S has always been a difficult form that very few people understand.  We work with book publishers, model agencies, casinos and many other companies year after year and very few understood Form 1042-S and the data required.  Each year, we email back and forth requesting more data so that the form can be filled out correctly and e-filed correctly with the IRS.

Here comes tax year 2014.  Form 1042-S is completely redesigned and split as:

Chapter 3 — WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

Chapter 4 — TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS

If you prepared Form 1042-S in tax year 2013 or for any prior year, then you have been reporting information under Chapter 3 (you just didn’t know it was Chapter 3).  Chapter 3 is the reporting of withholding for a non-US resident by a US company.  Book publishers are a classic example.  A United States publishing company will print books by writers from around the world.  Non-US writers are subject to withholding which means the publishing company (the withholding agent) has to withhold part of their pay and send that money to the IRS.  The writer (or recipient) might have an opportunity to get that withheld money from the IRS depending on which country they are from and whether that foreign country has a tax treaty set up with the United States.  The list of countries that do have a tax treaty with the IRS are in this article.  Most recipients who receive a Copy B by mail or email just give up and let the IRS keep the money.  If a publishing company withheld $40 or $100 from your pay and sent that to the IRS, are you going to chase that cash?  Probably not and the IRS knows this and they are gaining revenue.

All of the data you used to paper or electronically file for Chapter 3 in prior years is used again for tax year 2014. Tax year 2014 additionally requires

  1. Recipient’s account number.  Last year this was optional.  The account number is a unique set of letters, numbers, hyphens and blanks up to 20 characters in length.
  2. Recipient’s date of birth.
  3. Foreign taxpayer identification number, if any.

The recipient’s date of birth will probably stump most withholding agents. These are non-US residents; most of the withholding agents don’t retain a foreign TIN or have an account number for a client.  Having a birth date is really pushing it.  The good news is that the 1042-S instructions states

Use box 20 to enter the recipient’s date of birth if it is available in the withholding agent’s electronically searchable information.

That means the withholding agent dodged a bullet for TY2014 and can just enter blanks.  Just below that paragraph, the 1042-S instructions states:

 Starting in calendar year 2017, the withholding agent will be required to report either the recipient’s foreign tax identification number or the recipient’s date of birth.

That means that for everyone who filed 1042-S forms in prior years, the data you collected is fine and can be used for now.  But you have to start collecting the recipient foreign TIN or date of birth.  Its going to be required and you can’t paper or electronically file Form 1042-S without this information.  This is all good news for all of our clients because I doubt anyone collected this information. But a warning that more data must be retained by the withholding agent.

The big change to Form 1042-S is the inclusion of Chapter 4 reporting.  Lots and lots of edit fields related to Chapter 4 which is also commonly known as FATCA.  FATCA is the Foreign Account Tax Compliance Act (FATCA). It is a new law in the United States that requires US people, including individuals who live outside the United States, to report their financial accounts held outside of the United States.  These are financial accounts held in banks in Europe, Canada and anywhere else outside of the US.  The United States IRS wants to know that these accounts exist and who owns them.  Specifically, the IRS wants:

  1.  The withholding agent, in this case, the non-US bank or foreign financial institution (FFI) to report to the IRS about their US clients.  Whoa!!  Step back and read that again.  FATCA requires that these foreign financial institutions voluntarily fill out Form 1042-S and mail or email Copy B to the US entity reporting that they have a non-US financial account.  That FFI also has to send Copy A of Form 1042-S to the IRS.
  2.  US residents who own these foreign accounts or assets must report them on the new IRS Form 8938, Statement of Specified Foreign Financial Assets.

The IRS gets the information they want from someone and whoever doesn’t report may be penalized.  How does the IRS plan on penalizing a bank that is located in Switzerland or anywhere outside of the United States that doesn’t report this information?  I don’t know.  The US must have a strong tax treaty with this foreign countries to motivate their financial institutions to report this information to the IRS.  The change in Form 1042-S and new Form 8938 make it more difficult for a US citizen, living in or outside of the United States, to conceal assets held in offshore accounts.  Once the IRS knows where new money is held, new federal tax revenues follow.

 

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What's new with IRS Form 1042-S for tax year 2014?, 4.8 out of 5 based on 4 ratings Facebooktwittergoogle_pluslinkedinby feather

Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.

  1. January 14th, 2015 at 13:48 | #1

    This is not a really common form so it is hard to find knowledgeable assistance. I am on hold with the IRS right now (going on 19 minutes). In the meantime, you answered most of my questions like about the chapter 3 vs. chapter 4 as well as the overall purpose of the change. I appreciate the information.

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  2. Sunil Nandipati
    February 5th, 2015 at 23:03 | #2

    Hi Erich Ruth,

    I currently am filing jointly with my spouse and we have 3 W2s.

    I received a 1042-S (Income code 01, Chapter 3, Copy C for recipient mentioning to attach to any federal tax return I file) Foreign Person’s U.S. Source Income Subject to Withholding.
    Gross income is $189 and Federal tax withheld was $57.

    I have tried turbotax and hrblock but did NOT see a place to punch in the details.
    Can you suggest how do I attach this along with my federal.

    Thanks in advance

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  3. February 6th, 2015 at 08:13 | #3

    Its on the 1040-NR where NR stands for non-resident.

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  4. Tony Saikaly
    February 11th, 2015 at 09:43 | #4

    Hi Erich,
    I’m wondering how the submitting of the information related to form 1042 – S will be done? is there any XML format that should be filled and then delivered? or is it needed to directly fill the information in the website related to IRS?
    in addition to the above, does everyone (who withhold tax) need to fill form 1042 and 1042 -S?

    Thank you in advance!

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  5. February 11th, 2015 at 15:10 | #5

    Its not an XML file that you submit to the IRS. Instead its a notepad file in a very specific layout. You
    can efile directly to the IRS from your computer.

    > in addition to the above, does everyone (who withhold tax) need to fill form 1042 and 1042 -S?

    Kinda. Even if you dont withhold, you may also have to file a 1042-S. A 1042-S is used to report money
    paid from a US business to a non-US resident. The common example is book publishers. US book publishers
    hire writers from around the world. They pay the non-US resident royalty. The US firm might have to
    withhold money from that payment and send that withheld money to the IRS. The non-US resident might have
    the opportunity to get at that money depending on which country they are from and whether the US has a
    tax treaty with that country. Not all US businesses withhold money; if they dont, they still have to
    submit a 1042-S and they have to fill out an exemption code explaining why this individual is exempt
    from withholding.

    I hope this helps.

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  6. Sunil
    February 24th, 2015 at 15:53 | #6

    @Erich J. Ruth
    I am a resident in the US for 2014. Because of this form i received 1042S, should i be filing using 1040NR. Or should i file my regular returns using 1040 and another one showing this 1042S using 1040NR?

    Please clarify.

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  7. Dawn
    March 10th, 2015 at 13:04 | #7

    Thanks so much for the answers to my questions that I couldn’t find anywhere else!

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  8. March 12th, 2015 at 10:15 | #8

    We are an trucking co for independent owner operators and some are in Canada. We do not withhold on any of them but I do file 1042s for them. With this years new rules I am not sure if I need to use the chapter 3 boxes and fill them out. The instructions are a little confusing in that it seems to state you need to fill in chapter 3 or 4 information but also seems to say if you are not filling in boxes 7-9 you do not need to do 3 or 4. Last year I just filled out 0 in box 7 because we do not withhold. Do you have any suggestions as to how I would approach the forms for this year?

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  9. March 12th, 2015 at 10:30 | #9

    If you filed last year, then you filed as Chapter 3 and you just didnt realize it. Chapter 4 has
    to do with the Foreign Act Transfer Compliance Act. A Chapter 4 situation arises when a non-US
    bank requests/transfers money from a US bank on behalf of a US resident. Consider a really, really
    wealthy US resident who lives abroad. When they leave to live somewhere else, they typically leave
    their money in US banks and wire the money when they need it. That is a Chapter 4 transaction.

    Just fill out Chapter 3. If you buy the 1042-S software from 1099fire.com, they will review your
    file before you efile to help clean out any potential errors from the file.

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  10. March 12th, 2015 at 11:55 | #10

    Thanks so much for the reply. I will file chapter 3. I do not think I have enough time to purchase the software for this year, however, I would like to check into it. It sounds like it could be helpful. What I use now only handles my 1099’s. You were very helpful. I only have 32 to send this year I can just mail, correct?

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  11. March 12th, 2015 at 12:12 | #11

    I have been down this path a million times. I dont recommend printing and mailing in Copy A
    for the 1042-S. The reason why is simple. The 1042-S is really a difficult form. It has to be
    perfect. You put together the data, print, mail and hope that everything is okay. And by August,
    the IRS mails it back. With efiling, your forced to get it correct now.

    You can efile for an extension. The company 1099fire.com can efile on your behalf as well with their
    TCC number. The due date is this Monday. You do need to print and mail Copy B by Monday but with an
    extension, you can efile by mid-April.

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  12. March 12th, 2015 at 12:26 | #12

    Thanks I will check into it and get together with my boss.

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  13. Jessica
    March 14th, 2015 at 10:42 | #13

    I cannot find the 2014 1042-s form anywhere. cant you point me in the right direction? would you be so kind as to send me a link to for the 2014 1042-s form? please and thank you.

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  14. March 14th, 2015 at 10:45 | #14

    The form itself is here

    http://www.irs.gov/pub/irs-pdf/f1042s.pdf

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  15. Jon
    April 1st, 2015 at 02:53 | #15

    Hi Mr. Ruth,

    Thanks for all the information you’ve given on here. You mentioned that you’re worked with model agencies…I’m a model in the USA on an O-1 Visa. I didn’t leave the US for the last 12 months, so I think I’m classified as a resident alien for tax purposes. My agent sent me a 1042-S in the mail. My accountant who’s filing my taxes says I should have received a 1099. Is that necessary to file my return? He also says I should ask them to change my status on file so I receive a 1099 in the future. What are your thoughts? Any help is greatly appreciated.

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  16. April 1st, 2015 at 07:11 | #16

    You say “Im a model in the USA”. Are you a US citizen? Do you have a social security number?
    A US citizen gets a 1099-MISC. A non-US resident gets a 1042-S in general.

    If the US citizen does not provide a valid SSN, then the US business is supposed to withhold 30%
    of that payment and sent that to the IRS. The non-US resident who doesnt has a SSN is also
    supposed to have 30% of their pay sent to the IRS.

    The big question in the eyes of the IRS is not which form you get but that money was withheld
    or not withheld.

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  17. Chris
    April 1st, 2015 at 07:32 | #17

    We have a U.S. Citizen who is depositing his pay in a US bank but is ‘retired’ and living in Jamaica.. Would he require a 1042-s or a 1099?

    any insight would be appreciate.. we are really struggling with this.

    thanks!

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  18. April 1st, 2015 at 07:39 | #18

    A US citizen gets a 1099. Whether you are visiting Jamaica, your still a US resident. You still
    have a valid SSN correct? In this case, you get a 1099-MISC and not a 1042-S.

    A 1042-S is for non-US residents. The form says “Foreign Person’s US Source Income Subject to Withholding”.
    The keyword is “Withholding”. The government wants US businesses to withhold 30% of the pay and send
    that to the ISR if an individual does not have a valid SSN. You can show withholding on either
    Form 1099-MISC or IRS Form 1042-S.

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  19. Chris
    April 1st, 2015 at 08:07 | #19

    Thanks Eric.
    That’s what I was leaning towards.. but couldn’t get a clear enough resolution to proceed.
    The part that was throwing us off was that he is living in Jamaica. But he does have a SSN and for all intents and purposes is a US citizen/resident. So we will proceed with a 1099.
    Thanks again!

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  20. Jon
    April 1st, 2015 at 15:24 | #20

    @Erich J. Ruth
    Thanks for replying Eric! In fact, I do have a valid SSN. So it sounds like I should have received a 1099-MISC?

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  21. Jon
    April 1st, 2015 at 15:54 | #21

    @Erich J. Ruth
    Thanks for replying Eric! In fact, I do have a valid SSN. So it sounds like I should have received a 1099-MISC?

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  22. Juanita Sroka
    April 7th, 2015 at 09:18 | #22

    Good morning. The information here has been very useful. I have a question about a U.S. Born person, that has a SSN and has chosen to live in Canada with no residency in U.S. Anymore. This person wins a jackpot In a U.S. Casino. If I am reading this correct. Because he is a non-resident U.S. person, he would get a 1042-S tax form for his winnings. You also mentioned rules for have a SSN. If his number is known, what happened for reporting purposes. Are taxes withheld or not? I have been unable to find the answer to this question and would like to know where the answer to this is published.

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  23. April 7th, 2015 at 13:14 | #23

    If the person is no longer a US resident, then 1042-S applies. They are a non-resident. If
    the non-resident wins a jackpot, he would get a 1042-S form. We work with lots of casinos
    where winners are non-US residents and somehow they have a SSN (for a variety of reasons they
    have a SSN).

    I think, in my opinion, it really comes down to whoever is issuing the form
    because there is alot of confusion with these forms. If you say “I have a SSN”, then the casino
    might issue a W-2G because they think “hey this person has a SSN, they must a US resident”.
    If you dont have a valid SSN, then they have to withhold whether they issue a W-2G or 1042-S.

    You ask “if the SSN number is known, is there withholding” and I dont know. The IRS would be
    your best source to try to answer this question.

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  24. Arun
    April 9th, 2015 at 10:22 | #24

    Hi there,

    I am a Canadian PR. I have received the 1042-S form from Bank of America (I still have some funds in my BOA account in the US). On the 1042-S form, the “Income Code” says 29 and “Gross Income” says 31. Chap3 has a X and everything else is 0.
    Should I need to file a 1040-NR? or just ignore this 1042-S form?
    Please advise.

    Thanks

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  25. April 9th, 2015 at 10:36 | #25

    The big question is Box 7 and Box 10. Box 7 is US Federal Tax Withheld and Box 10 is Withholding Credit.
    If both of those boxes are 0, then nothing was withheld and there is no withholding credit and the 1042-S
    form is just for informational purposes. If something was withheld, then you might have an opportunity to
    use that “credit” on Form 1040-NR.

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  26. Arun
    April 9th, 2015 at 10:39 | #26

    Thanks so much, Erich.
    Yes, both box 7 and box 10 are 0.

    So, I can just relax and ignore my 1042-S form, correct?

    Please advise,
    Thanks

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  27. Sam
    April 28th, 2015 at 10:40 | #27

    Hi, Should the recipient’s date of birth be in MDY or MDYY format?

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  28. April 28th, 2015 at 10:44 | #28

    If you importing into the 1042-S software from the site 1099fire.com, just have the
    date in the format MM/DD/YY and the software will take care of the rest. If you are
    typing the data on the form yourself, then the recipients date of birth should be
    formatted as

    DDMMYYYY

    If not applicable, enter blanks.

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  29. Sam
    April 28th, 2015 at 11:06 | #29

    Thank you Erich

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  30. Susan Tricca
    March 10th, 2016 at 17:37 | #30

    I am just reading about the birth date requirement. First question, is it for the 2017 1042-S that will be filed by March 2018? Second, reading the IRS instructions, it sounded as if it was only required if the withholding agent is a financial institution. Is that true or is it required for all withholding agents? (we are not a financial institution, but rather a corporation that pays royalties to foreign artists who produce art that we sell on our website.)

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  31. March 10th, 2016 at 18:00 | #31

    Its for tax year 201, which is next year. You have to wait and see as to who it applies to.
    The IRS changes the rules all spring/summer and then in the fall we see the final form and final
    publication and then we know what is required and what isnt and who is required.

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  32. Susan Tricca
    January 17th, 2017 at 17:02 | #32

    I am just following up on my question from last year as it is now 2017 and I am getting ready to make payments, but don’t want to pay people if we do not have the information we will need at the end of the year. Did the IRS make a determination as to if only specific withholding agents are required to report foreign tax identification numbers on their Form 1042-S yet or if all withholding agents are required to report them ? (We are not a financial institution, but rather a privately held corporation.)

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  33. January 17th, 2017 at 17:55 | #33

    I dont have the answer to this question. The Form changed alittle from last year but
    I havent read anything where a withholding agent must report foreign TINs on the 1042-S form. Most agents that we work with, and we work with alot, could never acquire a foreign TIN. I did read the IRS will soon require the date of birth of the recipient but that is not required this year.

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