1042-S Reporting Changes – U.S. Income for Foreign Entities

1042-S Reporting Changes

The 1042-S is the tax form that the IRS requires businesses to use when reporting U.S.-sourced income for foreign (non-resident) individuals and entities. This includes wage payments, investments, capital distribution and other specified income streams. The form should be sent to the non-resident by the business that handles the transaction, as well as to the IRS.

Electronic Filing

If you have 250 or more 1042-S forms to file, electronic filing with the IRS is required.

Recent Rule Changes

The IRS has released a draft of the new Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, for tax information reporting on 2014 income payments. Form 1042-S is used by businesses to account for income paid to foreign individuals and entities.

Changes to Form 1042-S include new boxes and required data, as well as changes to the Tax Code intended to accommodate the implementation of the Foreign Account Tax Compliance Act (FATCA). The new version of the form combines tax reporting under Internal Revenue Code (IRC) Chapter 3, which concerns withholding a source, with IRC Chapter 4, which concerns FATCA.

FATCA requires foreign financial institutions (FFIs) to notify the IRS regarding accounts held by U.S. taxpayers. FFIs that do not comply with FATCA are subject to a 30 percent tax on profits from U.S. investments.