Overcome the Latest Challenges of Form 1042-S

David Dobbins
March 11, 2020

The 1042-S form is one of the most complex IRS forms. Our recent webinar: “Form 1042-S: Turn Stress into Success” discusses updates to the 1042-S for the 2019 filing year, obstacles to filing and how your business can stay compliant. Below are the key takeaways from the webinar.

What is the 1042-S

The primary difference between the 1042-S and others in the 1099 series is the 1042-S reports U.S. sourced income paid to non-U.S. payees.

Form 1042-S should be issued when U.S. sourced income, fixed or determination annual or periodic (FDAP income), is paid to non-U.S. payees. This includes payments to both persons and to entities.

Crack the codes

When we compare Form 1042-S to the 1099 series, it is very similar as it combines every payment form type on one form. The 1042-S differentiates what type of income, withholding and recipient is being reported through its coding. There are three main types of coding that are used on form 1042-S:

  1. Income Codes: identify the type of income paid to the account. If multiple types of income were paid to the same recipient, a separate Form 1042-S is required to be issued.
  2. Exemption Codes: explain why there may or may not be withholding.
  3. Status Codes: identify the type of entity the recipient claims to be according to Chapter 3 and Chapter 4

Between these three types of codes on Form 1042-S there are 156 codes the IRS requires businesses to know when filling out their forms which is why this is the most complex form in the 10-series. Understanding the differences between income, exemption and status codes is essential to protecting your business from penalties.

Tax year 2019 changes

Because Form 1042-S has so many moving boxes on it, it’s important businesses stay up to date on the latest changes year over year. Here were the three biggest updates going into Tax Year 2019 1042-S reporting:

  1. New income code 55: reports taxable death benefits from life insurance
  2. New box 7c: reports the distributions paid to foreign partners
  3. Supplemental instructions for tax year 2019: modifies reporting of late partnership distributions and adds 24% as a withholding rate

For more takeaways on the latest 1042-S form changes, watch the full free webinar on demand.

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David Dobbins

Content Marketing Manager
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