It’s a common question: you received Copy B of IRS Form 1042-S in the mail or by email. The form states that a U.S. company withheld some amount of money from you and sent it to the IRS. How can you, the recipient of this 1042-S form, get that withheld money back? The process depends on your filing status and the type of income reported.
Form 1042-S, Chapter 3: Non-Resident Withholding
Withheld amounts under Chapter 3 are reported on IRS Form 1042-S. Non-resident aliens can typically request a refund by filing Form 1040NR, the non-resident alien income tax return. This process applies to foreign students, exchange visitors, or other non-residents earning taxable U.S. income.
For example, Line 21 of Form 1040NR lets filers report income exempt under a tax treaty, while Line 22 lists income subject to taxation after deductions. Any amounts withheld and reported on Form 1042-S would be claimed under Payments, Line 61(d), which provides a credit against U.S. tax liability.
If the tax withheld exceeds the actual liability, the non-resident can request a refund, just like any U.S. taxpayer. This refund would be processed after filing the return.
Learn more about filing IRS Form 1042-S and compliance requirements.
Form 1042-S, Chapter 4: Non-Resident Withholding Under FATCA
When payments are made from a U.S. source to non-U.S. financial institutions or non-resident individuals, FATCA rules require additional withholding. Typically, a 30% withholding applies if the foreign financial institution (FFI) does not register with the IRS or provide a Global Intermediary Identification Number (GIIN).
This withheld money is deposited with the IRS and documented on Form 1042-S. Recipients may later claim a refund by reporting the payment on their U.S. tax return. The process mirrors employee wage withholding, where excess tax withheld can be refunded.
How Refunds Are Requested
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File Form 1040NR (for non-residents).
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Attach Copy B of Form 1042-S to your return as proof of withholding.
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Claim the withheld amount as a credit on your return.
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If the withholding exceeds your tax liability, the IRS will issue a refund.
For U.S. taxpayers, however, Form 1040 has no dedicated line for 1042-S payments. Instead, amounts may be reported similarly to W-2 or 1099 withholding by attaching Form 1042-S to the return.
Challenges in Claiming Refunds
While non-residents have clearer instructions, U.S. taxpayers often face delays because Form 1042-S was designed primarily for reporting payments to non-residents and FFIs. The IRS requires careful documentation, and missing information could delay refund processing.
That’s why using 1042-S filing software can make compliance easier. Software solutions can generate electronic files, handle bulk reporting, and ensure proper formatting so withholding and refunds are reported accurately.
Final Thoughts
IRS Form 1042-S is essential for both non-residents and U.S. taxpayers dealing with withholding on U.S. source income. Recipients seeking a refund must file the correct return, claim credits properly, and attach supporting documentation.
Failure to file correctly can lead to refund delays or even lost withholding credits. For businesses, filing software simplifies compliance and reduces errors when reporting withholding.
For more guidance on compliance, penalties, and filing rules, see our article on IRS Form 1042-S.