{"id":8373,"date":"2025-10-01T15:28:40","date_gmt":"2025-10-01T15:28:40","guid":{"rendered":"https:\/\/www.tax1099.com\/blog\/?p=8373"},"modified":"2026-03-20T10:46:17","modified_gmt":"2026-03-20T10:46:17","slug":"form-1042-s-income-codes","status":"publish","type":"post","link":"https:\/\/www.tax1099.com\/blog\/form-1042-s-income-codes\/","title":{"rendered":"Form 1042-S Income Codes Made Easy"},"content":{"rendered":"

Form 1042-S reports U.S. source income and amounts withheld paid to foreign persons such as nonresident aliens, foreign corporations, foreign partnerships, estates, and trusts. It reports the taxes withheld on foreign entities wages, scholarships and fellowships.<\/p>\n

Box 1 of form 1042-S requires payer to fill out the two-digit income code. This code indicates the type of income (wages, scholarships, or deposits) paid to the foreign person. Before filing the form 1042-S, you must validate the income code and correctly fill Box 1.<\/p>\n

What does each income code mean and how they are used to report different types of U.S. source income for foreign persons?<\/p>\n

In this blog, we have shared the cheat sheet of income codes in Form 1042-S. We will also talk about the coding checklist and how to fill box 1.<\/p>\n

Why the Right Income Code Is Important?<\/h2>\n

It is important for the payers to fill out the right code in Box 1 since IRS evaluates whether code in this box aligns with the amount shown in withholding area (boxes 7a-11).<\/p>\n

IRS has set different statutory rates for withholding taxes from the payee’s income. Thus, different income codes have different withholding rates.<\/p>\n

For instance, some payment types have a statutory withholding rate of 30% while others may have a variable rate of 2%, 21%, or 37%. Some payment types have a 0% statutory rate, which means they are exempt from taxes.<\/p>\n

Thus, the right income code prevents the over- or under-withholding of the taxes from the amount.<\/p>\n

Are There Any Consequences of Incorrect Filing?<\/h2>\n

Yes. Incorrect filing of form 1042-S can lead to return rejection and even financial penalties. Each incorrect or late filing can trigger 1042-S penalties<\/a> up to $340 per form. If the IRS considers the mistake as intentional disregard, the penalty doubles to $680 per form or 10% of the income shown, whichever is higher.<\/p>\n

The more the number of forms with incorrect filing, the higher the penalty for subsequent forms.<\/p>\n

How Form 1042-S Income Codes Are Grouped?<\/h2>\n

Box 1 of Form 1042-S has various income code options, each of which can be confusing for the taxpayers. IRS has divided these income codes into logical categories, which makes it easier for the payers to figure out the right income code.<\/p>\n

Here is a tabular representation of these codes, divided into categories:<\/p>\n\n\n\n\n\n\n\n\n
Group<\/strong><\/th>\nWhat It Covers<\/strong><\/th>\nCommon Codes<\/strong><\/th>\nSimple Example<\/strong><\/th>\n<\/tr>\n<\/thead>\n
Interest<\/td>\nMoney earned from lending or deposits<\/td>\n01, 29, 30<\/td>\nBank CD interest to a Canadian resident<\/td>\n<\/tr>\n
Dividends<\/td>\nProfit from shares<\/td>\n06, 34, 53<\/td>\nQuarterly dividend on U.S. stock<\/td>\n<\/tr>\n
Services<\/td>\nFees paid for work (17\u2014independent personal services; 18\u2014dependent personal services; 19\u2014teaching; 20\u2014compensation during studying\/training; wages are on Form W-2 except limited treaty cases)<\/td>\n17\u201320<\/td>\nDesign contract with a UK freelancer<\/td>\n<\/tr>\n
Royalties & Rent<\/td>\nPay for the right to use property or ideas<\/td>\n10\u201316<\/td>\nSoftware license fee to an Indian firm<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

What are the important Form 1042-S income codes?<\/h2>\n

Although there are various income codes in Form 1042-S, some are used more than others.<\/p>\n\n\n\n\n\n\n\n\n\n
Code(s)<\/strong><\/th>\nWhat it covers<\/strong><\/th>\nRules for filing<\/strong><\/th>\n<\/tr>\n<\/thead>\n
29<\/td>\nInterests earned on bank deposits.<\/td>\nExempt with a valid W-8. Reporting is a must.<\/td>\n<\/tr>\n
01<\/td>\nInterest earned on non-deposits.<\/td>\nDefault 30% statutory rate until a treaty code or exemption applies.<\/td>\n<\/tr>\n
17-20<\/td>\nPayment for services (independent, dependent, teaching, training)<\/td>\nWithhold taxes only if services are performed in the U.S.<\/td>\n<\/tr>\n
27\/57<\/td>\nPublicly traded partnership distributions and sale<\/td>\nFor code 27: Section 1446(a) highest rates by recipient type. Code 57: 10% of amount realized unless exception.<\/td>\n<\/tr>\n
23<\/td>\nOther income<\/td>\nUse only when nothing applies. Document \u201cwhy 23\u201d<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Form 1042-S Income Codes Lookup Table<\/h2>\n

Wondering which income code to fill in Box 1? Below, we’ve shared each income code in numerical order, each divided into categories.<\/p>\n

Refer to these tables for correcting the right income code in Box 1.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Code<\/strong><\/th>\nCategory<\/strong><\/th>\nDescription<\/strong><\/th>\n<\/tr>\n<\/thead>\n
01<\/td>\nInterest<\/td>\nInterest paid by U.S. borrowers<\/td>\n<\/tr>\n
02<\/td>\nInterest<\/td>\nInterest on U.S. real\u2011property mortgages<\/td>\n<\/tr>\n
03<\/td>\nInterest<\/td>\nInterest paid to controlling foreign corporations<\/td>\n<\/tr>\n
04<\/td>\nInterest<\/td>\nInterest paid by foreign corporations on U.S.-source debt<\/td>\n<\/tr>\n
05<\/td>\nInterest<\/td>\nInterest on tax\u2011free covenant bonds<\/td>\n<\/tr>\n
06<\/td>\nDividends<\/td>\nU.S. corporation dividends\u2014general<\/td>\n<\/tr>\n
07<\/td>\nDividends<\/td>\nDividends qualifying for direct dividend rate<\/td>\n<\/tr>\n
08<\/td>\nDividends<\/td>\nDividends paid by foreign corporations<\/td>\n<\/tr>\n
09<\/td>\nCapital Gains<\/td>\nReportable capital\u2011gain income<\/td>\n<\/tr>\n
10<\/td>\nRoyalties<\/td>\nIndustrial royalties (patents, mining)<\/td>\n<\/tr>\n
11<\/td>\nRoyalties<\/td>\nMotion\u2011picture\/TV royalties<\/td>\n<\/tr>\n
12<\/td>\nRoyalties<\/td>\nOther royalties (software, copyright)<\/td>\n<\/tr>\n
13<\/td>\nRoyalties<\/td>\nRoyalties on certain publicly offered securities<\/td>\n<\/tr>\n
14<\/td>\nRents\/Royalties<\/td>\nReal\u2011property & natural\u2011resource royalties<\/td>\n<\/tr>\n
15<\/td>\nPensions<\/td>\nPensions, annuities, alimony, insurance premiums<\/td>\n<\/tr>\n
16<\/td>\nScholarship<\/td>\nScholarship or fellowship grants<\/td>\n<\/tr>\n
17<\/td>\nServices<\/td>\nIndependent personal services (consulting)<\/td>\n<\/tr>\n
18<\/td>\nServices<\/td>\nDependent personal services (wages)<\/td>\n<\/tr>\n
19<\/td>\nServices<\/td>\nTeaching compensation<\/td>\n<\/tr>\n
20<\/td>\nServices<\/td>\nCompensation during study or training<\/td>\n<\/tr>\n
22<\/td>\nInterest<\/td>\nDeposit interest paid by foreign branch of U.S. entity<\/td>\n<\/tr>\n
23<\/td>\nOther<\/td>\nOther income (last resort)<\/td>\n<\/tr>\n
24<\/td>\nOther<\/td>\nQIE capital\u2011gain distributions<\/td>\n<\/tr>\n
25<\/td>\nOther<\/td>\nTrust distributions under IRC 1445<\/td>\n<\/tr>\n
26<\/td>\nOther<\/td>\nCrop\/timber distributions under IRC 1445<\/td>\n<\/tr>\n
27<\/td>\nPTP<\/td>\nPublicly traded partnership (PTP) distributions (IRC 1446(a))<\/td>\n<\/tr>\n
28<\/td>\nGambling<\/td>\nGambling winnings<\/td>\n<\/tr>\n
29<\/td>\nInterest<\/td>\nBank\u2011deposit interest<\/td>\n<\/tr>\n
30<\/td>\nInterest<\/td>\nOriginal issue discount (OID)<\/td>\n<\/tr>\n
31<\/td>\nInterest<\/td>\nShort\u2011term OID<\/td>\n<\/tr>\n
32<\/td>\nOther<\/td>\nNotional principal contract income<\/td>\n<\/tr>\n
33<\/td>\nInterest<\/td>\nSubstitute interest payment<\/td>\n<\/tr>\n
34<\/td>\nDividends<\/td>\nSubstitute dividend payment<\/td>\n<\/tr>\n
35<\/td>\nOther<\/td>\nSubstitute payment\u2014other<\/td>\n<\/tr>\n
36<\/td>\nDividends<\/td>\nCapital\u2011gain distributions<\/td>\n<\/tr>\n
37<\/td>\nOther<\/td>\nReturn of capital<\/td>\n<\/tr>\n
38<\/td>\nOther<\/td>\nDeferred compensation (IRC 877A)<\/td>\n<\/tr>\n
39<\/td>\nOther<\/td>\nNon grantor\u2011trust distributions (IRC 877A)<\/td>\n<\/tr>\n
40<\/td>\nDividends<\/td>\nOther dividend equivalents (IRC 871(m))<\/td>\n<\/tr>\n
41<\/td>\nOther<\/td>\nGuarantee of indebtedness<\/td>\n<\/tr>\n
42<\/td>\nArtist\/Athlete<\/td>\nArtist\/athlete earnings\u2014no CWA<\/td>\n<\/tr>\n
43<\/td>\nArtist\/Athlete<\/td>\nArtist\/athlete earnings\u2014with CWA<\/td>\n<\/tr>\n
44<\/td>\nOther<\/td>\nSpecified federal procurement payments<\/td>\n<\/tr>\n
50<\/td>\nOther<\/td>\nIncome previously reported under escrow procedure<\/td>\n<\/tr>\n
51<\/td>\nInterest<\/td>\nInterest on actively traded securities<\/td>\n<\/tr>\n
52<\/td>\nDividends<\/td>\nDividends on actively traded securities<\/td>\n<\/tr>\n
53<\/td>\nDividends<\/td>\nSubstitute dividends on actively traded securities<\/td>\n<\/tr>\n
54<\/td>\nInterest<\/td>\nSubstitute interest on actively traded securities<\/td>\n<\/tr>\n
55<\/td>\nOther<\/td>\nTaxable death benefits on life\u2011insurance contracts<\/td>\n<\/tr>\n
56<\/td>\nDividends<\/td>\nDividend equivalents\u2014combined transactions<\/td>\n<\/tr>\n
57<\/td>\nPTP<\/td>\nAmount realized (IRC 1446(f))<\/td>\n<\/tr>\n
58<\/td>\nPTP<\/td>\nPTP distributions\u2014undetermined<\/td>\n<\/tr>\n
59<\/td>\nOther (NEW)<\/td>\nConsent fees (optional 2025)<\/td>\n<\/tr>\n
60<\/td>\nOther (NEW)<\/td>\nLoan\u2011syndication fees (optional 2025)<\/td>\n<\/tr>\n
61<\/td>\nOther (NEW)<\/td>\nSettlement payments (optional 2025)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

How to Choose 1042-S Code?<\/h2>\n

Now that you have a lookup table for income codes, refer to this step-by-step checklist to identify the right income code.<\/p>\n

    \n
  • Name the payment: First, look at the invoice or contract of the foreign person. Is the payment made as interest, dividend, rent, royalty, or something else?<\/li>\n
  • Find the matching code: After identifying the payment type, use this to find the right income code. Refer to the above table or IRS Appendix A to match the code. Pick the right code and fill in Box 1. Use boxes 59-61 to refer to other payment types.<\/li>\n
  • Save proof for at least 3 years: Store certain proof such as payee’s W-8 form, rate calculations and any treaty claim for a period of at least 3 years. Make sure to store a short memo citing why this code fits for this payment.<\/li>\n<\/ul>\n

    What are the Common Mistakes While Filing 1042-S and How to File Them?<\/h2>\n

    A payer should carefully file Form 1042-S as incorrect filing can lead to penalties. Yet, there are some common mistakes that you should always be aware of:<\/p>\n

      \n
    • Mixing 01 and 29: You might mix codes 01 and 29 and consider them the same. However, the two are different. While code 29 refers to the interest paid by U.S. banks on deposits, code 01 indicates the interest paid by other U.S. based obligators. Hence, it is essential to cross-check the interest earned.<\/li>\n
    • Overusing code “23\u201d: Payers may overuse the code 23 in Box 1. Overuse of this code to refer each form may result in serious scrutiny from IRS. If you want to refer to other types of payments, refer to the table to indicate the right type of code.<\/li>\n
    • Missing U.S. business link (ECI): Some payers might incorrectly withhold 30% tax even if they have partnerships with U.S. businesses. If income is effectively connected to a U.S. trade or business (ECI), it is subject to normal U.S. tax rules rather than the standard 30% Chapter-3 withholding. When reporting ECI on Form 1042-S, you generally use the appropriate 1042-S exemption code<\/a> (for example, code 01) and must include the recipient\u2019s U.S. TIN. A foreign person with ECI will typically be required to file a U.S. tax return.<\/li>\n<\/ul>\n

      FAQs<\/h2>\n

      1. How many income codes are there in 2025?<\/h5>\n

      There are a total of 61 income codes in Form 1042-S including three new codes (59-61) in 2025.<\/p>\n

      2. Can the payer list two codes on one form?<\/h5>\n

      Ans: No. Payers can list one code in each form. There should be a new form for each payment type.<\/p>\n

      3. Is Code 23 safe?<\/h5>\n

      Code 23 is only safe when no other code fits. You should also document why you have used code 23.<\/p>\n

      4. Does bank-deposit interest need tax?<\/h5>\n

      No, bank deposit interests require no tax withholding under chapter 3. However, you should properly document and keep W-8 as proof and report when required.<\/p>\n

      5. What happens if the payer uses the wrong code?<\/h5>\n

      If the payer uses the wrong code, they may be liable for penalties. Each incorrect filing can levy a penalty of up to $340 per form.<\/p>\n

      6. Are the new codes 59-61 required now?<\/h5>\n

      There are still no mandates on code 59-61. It is optional to use them instead of code 23.<\/p>\n

      7. What is the deadline for filing Form 1042-S?<\/h5>\n

      The last date for filing Form 1042-S is March 15 of the year following the calendar year. If March 15 falls on a weekend or legal holiday, the due date is the next business day.<\/p>\n

      Choose Tax1099 for correct filing<\/h2>\n

      Now, you must be aware of the importance of the correct filing of Form 1042-S. Hence, you should not merely rely on guesswork and IRS letters.<\/p>\n

      Instead, use a platform like Tax1099 for filing Form 1042-S<\/a> correctly. Sign up for Tax1099 now and the platform will show you the right code to fill in Box 1.<\/p>\n

      Tax1099 validates each piece of information and checks each form before submitting.
      \nThe best part? You can eFile your return in minutes.<\/p>\n