Form 1042-S Changes for 2012

Form 1042-S Changes for 2012

August 1, 2012, 1:09 pm EDT in Tax Tips

For a quick background to those unfamiliar with IRS Form 1042-S, it is an information return reporting U.S.-sourced income paid to foreign individuals and entities. Businesses that handle the transaction are required to send the form to non-residents and the IRS for every payment made. Basically, it is the foreign equivalent of a Form 1099 issued to U.S. persons.

Although the appearance of Form 1042-S did not change this year, there are two noteworthy changes to the instructions that will greatly influence the number of forms filed.

First, 1042-S reporting has been expanded to include ordinary interest, which prior to 2012, was never considered a reportable item. So, for example, if your organization has an invoice outstanding with a contract requiring interest to be paid in the case your organization is late on the payment, you are now required to report that interest to the IRS. With this change, we will see a significant increase in the number of people required to file Form 1042-S.

Second, reporting requirements have been expanded to include income reporting even when there is no withholding on that income. Historically, organizations were only required to submit Form 1042-S if they withheld on the payment, but recent FATCA regulations are continuing to expand cross border reporting requirements like we are seeing here.

We are expecting the next set of changes to be announced late summer or early fall in IRS Publication 1187, and we will be sure to inform everyone when this happens. Learn more about these updated requirements at our free webinar on 1042-S and International Compliance with Jill Dymtrow of Burt, Staples and Maner.