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What is IRS Form 1042-S? A Quick Guide on how to file Form 1042-S 

What is IRS Form 1042-S

Preparing a 1042-S is challenging, and the stakes get even higher if there are incorrect filings, leading to penalties, fines, and unnecessary stress. Don’t worry! Today, we’ll tackle some of the most frequently asked questions about filing a 1042-S: What is Form 1042-S? What are the deadlines for filing a 1042-S? And are there any recent updates in the form? When should you file Form 1042-S? How and where to file 1042-S?

So, let’s quickly dive into this blog post where we have explained everything you need to know before filing Form 1042-S!

What is IRS Form 1042-S?

IRS Form 1042-S is an information return used to report income paid to foreign persons, including non-resident aliens, foreign corporations, foreign partnerships, foreign estates, and foreign trusts. It is designed to report various types of income, including wages, fellowships, royalties, and certain types of payments for services.

Here’s a list of income types (but not limited to) that reported in Form 1042-S:

  • Salary
  • Wages
  • Rent
  • Dividend
  • Allowance
  • Rewards
  • Compensation
  • Premiums
  • Scholarships
  • Grants

Most of these are treated as “FDAP” income (fixed or predictable payments like interest, dividends, or rent). The default withholding rate is 30%, unless a tax treaty or specific IRS rule allows a lower rate or exemption.

Rental income from U.S. property is usually in that 30% bucket. A foreign owner can choose to treat the rental as effectively connected income (for example, by giving Form W-8ECI), which changes how it is taxed and reported.

For 1042-S reporting to foreign persons, each income type is also tagged with an income code in Box 1. For instance, dividends use income code 06, and scholarships or fellowships use income code 16. There are new optional income codes (59, 60, and 61) that can be used (starting with TY 2025) for consent fees, loan syndication fees, and settlement payments, respectively, when no other specific income code fits.

Note: Premiums paid to a foreign insurer are generally not reported on Form 1042-S. Instead, they are subject to the section 4371 excise tax and reported on Form 720.

Who Needs to File 1042-S?

Form 1042-S must be filed by a withholding agent (US individual, business, or institution) who has paid income to a foreign person that is subject to income tax withholding, even if no amount is deducted and withheld from the income because of a treaty or code exception to taxation.

This form applies to all payments made to non-resident aliens subject to tax withholding, including foreign partnerships, corporations, trusts, as well as educational institutions in the US.

If your institution employs non-US citizens, it’s your duty to file on their behalf. This could include various roles such as cafeteria workers or college tutors, for instance. Additionally, a copy of Form 1042-S must be provided to the nonresident alien individual.

Form 1042 summarizes the information reported on a 1042-S, which is issued to students and employees. It details the withholding agent’s tax liability on the withheld or should-have-been-withheld taxes.

By filing Form 1042, you’re informing the IRS about the total cumulative amount of payments made to non-US individuals throughout the tax year.

Recent updates in the form 1042-S

  • 1042-S New Income Codes: For the 2023 tax year, Form 1042-S introduces two new income codes. Code 57 is for brokers to report withholding from transfers of PTP interests, while code 58 is for nominees to report PTP distribution income when its characterization is uncertain.
  • Chapter 3 Status Code: A new status code 39, “Disclosing QI,” is added to Form 1042-S for payments made to Qualified Intermediaries (QIs) acting as disclosing QIs by brokers, PTPs, or nominees.
  • Revised Reporting for Territory Financial Institutions: Reporting concerning territory financial institutions under Chapter 3 withholding has been revised. Status codes 03 and 04, as well as exemption code 09, have been removed for payments made to territory FIs treated as or not treated as U.S. persons.

Information Reported on Form 1042-S

  • Payers Details: Name, Address, Tax identification number (TIN), GIIN Number
  • Recipient Information: Name, Address, Tax identification number (TIN), GIIN Number
  • Income Information: This requires the income code that classifies the payment type.
  • Withholding Information: This determines the amount of tax to be withheld from payments made to nonresident aliens.
  • Withholding agent information: Name, EIN, GIIN
  • Primary Withholding Agent information: Name (If applicable), EIN
  • Intermediary or flow-through entity information: Name, GIN, EIN (if any)
  • State Withholding Information

Payments Covered in Form 1042-S

Not all payments to foreign entities are treated similarly under U.S. information returns law. Form 1042-S captures certain types of U.S.-source income. Thus, knowing what falls under its umbrella is critical for tax compliance.

Below are the most common payment types to be reported, along with some examples of payments to be reported elsewhere.

1. Payments Made to Foreign Individuals or Entities

Payments to foreign non-employees for services performed in the U.S. are generally reportable on 1042-S, whereas employee wages are usually reported on Form W-2 (unless treaty-exempt, in which case Form 1042-S may apply). For example, consulting fees, speaking fees, or performance fees paid to non-employees are typically reported on Form 1042-S.

Bank deposit interest paid to NRAs is generally 0% withholding. It is reportable on Form 1042-S (Income Code 29) when required by IRS rules (or if it’s ECI).

2. Dividends Made to Foreign Shareholders

If you are a U.S. Company and a foreign person owns your stock and receives dividends, that should be reported on Form 1042-S.

3. Royalties

Payments made to a foreign person for royalties for intellectual property, such as patents, trademarks, written works, or software, will need to be reported.

4. Scholarships, Fellowships, and Grants

For those educational institutions that provide scholarships, stipends, or fellowships to an international student or researcher, any taxable portion of these payments should be reported.

5. Prizes and Awards

Non-employee prizes or awards given to foreign persons are also included.

How Form 1042-S Differs from Other Forms

Form 1042-S is distinct from other information return forms in that it generally applies to foreign recipients (and to certain U.S. payee pools), whereas most other forms (such as the Form 1099 series and Form W-2) are used for U.S. recipients. Here are some other forms and what they cover:

  • Forms 1099 are filed when non-wage payments are made to U.S. recipients.
  • W-2 forms report the wages paid to U.S. employees.
  • FIRPTA (sale of U.S. real property by a foreign person) is handled with Forms 8288/8288-A (and 8288-B for a withholding certificate), not Form 1042-S.

What is the difference between 1042 and 1042-S?

The primary distinction between Form 1042 and Form 1042-S lies in their purposes. Form 1042-S is employed for reporting payments made to foreign individuals, whereas Form 1042 focuses on determining the amount of tax to be withheld on specific income of nonresident aliens and other foreign individuals.

Form 1042: Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.
Form 1042-S: Foreign Person’s U.S. Source Income Subject to Withholding.

Form 1042-S Form 1042
Who files the form? Any US person, business, or institution that provides an income to non-citizen (the agent) Any US person, business, or institution that provides an income to non-citizen (the agent)
What is reported? Taxable revenues transferred to a foreign entity The amount of tax deducted from taxable revenues transferred to foreign entities
When to file the report? March 15, along with the annual Tax return March 15, along with the annual Tax return
Where to file the report? The IRS and the foreign entity receiving the revenues Only to the I.R.S

When, Where, and How to File IRS Form 1042-S?

Form 1042-S, whether submitted on paper or electronically, must be filed with the IRS and provided to the income recipient by March 15.
If March 15th falls on a Saturday, Sunday, or legal holiday in the District of Columbia or the filing location, the due date shifts to the next business day.

The threshold for eFiling Form 1042-S and other forms has been significantly reduced. Previously set at 250 or more returns, it has now dropped to just 10 or more returns. This change became effective for forms filed on or after January 1, 2024. Therefore, if you need to file 10 or more Form 1042-S, you are required to eFile them.

eFile Form 1042-S in minutes with Tax1099. We can also assist with the preparation and filing of Form 1042-S, offering features like scheduling the transmission date to the IRS and allowing for edits before the final submission.

Step 1: Create
Log in or sign up on Tax1099. Choose the tax year, select Form 1042-S, and proceed to the next step. Enter the payer’s and recipient’s details.
Tax1099 offers multiple options for data import:

  • Add One at a Time: Follow simple prompts to add payers’ step by step.
  • Upload Bulk Excel: Use our template to quickly add multiple payers.
  • API Integration: Access full integration with any of your existing accounting software and import data.

Step 2: Verify
Review the entered details for accuracy. Utilize TIN matching, USPS Address validation, and other tools to ensure data correctness.

Step 3: Submit

Now, you are ready to efile your Form 1042-S with the IRS. After successful submission, download and deliver recipient copies via postal mail or through Tax1099’s IRS-compliant eDelivery.

A Payer Compliance Checklist

Before you fill out Form 1042-S, there are some steps you need to take to prep. Filing is really just following the steps in order:

  • Start with the right paperwork: Before you pay, collect the correct Form W-8 (or other required form) from the foreign recipient.
  • Confirm if it’s U.S.-source income: Decide where the income is considered earned and whether the work was done in the United States—that’s what drives 1042-S reporting.
  • Choose the correct tax rate: Use the default 30% rate unless a tax treaty or specific IRS rule lets you use a lower rate or 0%.
  • Withhold and deposit tax (if any): If you must withhold, take the tax out of the payment and deposit it with the IRS on time.
  • Prepare Form 1042-S: Follow the steps in the section above, which comes down to this: for each income type/tax rate combo, select the income code, enter the gross amount, tax rate, tax withheld, and full details for both payer and recipient.
  • Send copies and file with the IRS: Give the recipient their 1042-S and file with the IRS by March 16, 2026 (as March 15, 2026, is a Sunday).

Common 1042-S Mistakes

Here are some common mistakes filers make while filing Form 1042-S and what should be done instead to avoid the errors:

Common Error What To Do Instead
Leaving mandatory fields blank Fill in all required fields. At minimum include the unique form identifier and boxes 1, 2, 3, 7a, 12a, 12b, 12c, 12d, 12f, 12h, 12i, 13a, 13b, 13c, and 13d (plus 4a, 4b, 13g when applicable).
Using incorrect or missing source documents Use valid source documents (e.g., Form W-8 series, Form 8233) to complete and submit Form 1042-S.
Reporting in foreign currency Report all amounts in U.S. dollars.
Rounding mistakes Round to whole dollars: drop amounts under $0.50; round $0.50–$0.99 up.
Mentioning zero in gross income when a payment was made Complete Box 2 (gross income) with the gross amount paid (rounded to whole dollars)—do not enter zero if a payment was made.
Wrong income codes Ensure Box 1 uses the correct income code that matches the type of payment made to the recipient.
Using invalid rates of taxation Apply only statute-, regulation-, or treaty-allowed rates. If multiple rates apply, file separate Forms 1042-S to show each rate.
Claiming a treaty exemption without proper detail If using exemption code 04 (exempt under tax treaty), enter the correct treaty country code in Box 13b and ensure supporting documentation is retained.

Real-Life Scenarios

Scenario 1042-S Treatment
A foreign contractor spends 3 days working in the U.S. Treat the fee as U.S.-source service income. Withhold 30% unless a tax treaty allows a lower rate, and issue Form 1042-S for the payment.
A foreign designer does the entire project from outside the U.S. The service fee is foreign-source income, so Form 1042-S is not required. Keep clear records showing where the work was performed.
A U.S. company pays a dividend to a foreign shareholder This is U.S.-source dividend income. Apply the standard 30% withholding rate unless a treaty reduces it, and report the dividend on Form 1042-S.
Royalty is paid to a foreign software company Count it as U.S.-source royalty income if the underlying rights are used in the U.S. Withhold at 30% or the treaty rate and report the royalty on Form 1042-S.
A university pays a scholarship to a nonresident student Report the taxable portion on Form 1042-S. Amounts for tuition may be non-taxable; stipends or living-expense amounts are usually taxable and may need withholding.

FAQs

1. Who is responsible for Form 1042-S?

The withholding agent, i.e., the person or business that controls or makes the payment to the foreign recipient.

2. Is there a dollar threshold for filing Form 1042-S?

In general, there is no minimum dollar threshold. If a payment is reportable under chapters 3 or 4, you must file Form 1042-S even if no tax is withheld. However, certain deposit interest paid to nonresident alien individuals is required to be reported on Form 1042-S only when the total deposit interest paid is $10 or more for the year (though you may choose to report additional amounts).

3. What is the deadline for Form 1042-S?

The statutory due date is March 15 to send the form to the recipient and file with the IRS (or the next business day if March 15 is a weekend or holiday). For TY 2025, the deadline for filing and furnishing falls on March 16, 2026.

4. When is e-filing required?

When you file 10 or more information returns in total for the year, you generally must e-file Form 1042-S.

5. What if no tax is withheld?

You still file Form 1042-S if the payment is reportable, even when a treaty or rule reduces the rate to 0%.

6. How does 1042-S differ from 1099 forms?

Form 1042-S is for foreign recipients of U.S.-source income, while 1099 forms are generally for U.S. recipients.

7. Can one recipient get multiple 1042-S forms?

Yes. You send a separate Form 1042-S for each income type or tax rate for that recipient.

Use Tax1099 to e-file Form 1042-S accurately and on time enter recipient details, apply treaty benefits, and submit to the IRS in just a few steps.

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