When a U.S. publisher pays royalties to a foreign author, those payments count as U.S.-source income. The publisher must report them to the IRS using Form 1042-S.
Withholding Requirements
The publisher, acting as the withholding agent, withholds federal income tax before sending payment to the author.
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The standard rate is 30%.
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However, tax treaties may reduce this rate. For example, some treaties lower royalty withholding to 10%.
Issuing Form 1042-S
At the end of the year, the publisher prepares Form 1042-S for the author. This form shows:
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Total royalties paid (Box 2),
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The royalty income type code (Box 1),
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Federal tax withheld (Box 7), and
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Any treaty benefits and reduced rates (Box 3a).
How Foreign Authors Use Form 1042-S
Foreign authors use this form to:
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Report royalties on their U.S. tax return (Form 1040-NR).
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Claim tax credits to offset U.S. tax liability or request refunds if excess withholding occurred.
Why Form 1042-S Matters
Form 1042-S provides proof of both income received and taxes withheld. Therefore, it ensures accurate IRS reporting and helps authors receive refunds when eligible.
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