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1042-S Tax Forms

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The income-withholding requirements of the U.S. Internal Revenue Service apply not only to U.S. citizens and corporations but also foreign entities making money from U.S. sources. They require 1042-S tax forms to report the income and payments “withholding agents” make to foreign “beneficial owners” under Chapters 3 and 4 of the IRS tax code. Chapter 3 owners include nonresident aliens who receive a fixed income or periodic payments from U.S. - based employment or investment sources. Chapter 4 owners include a broad range of foreign financial entities making money from U.S. - based sources but holding some of the assets in offshore accounts. The federal government recently added this tax obligation category under the U.S. Foreign Account Tax Compliance Act to generate more IRS revenue more fairly by holding offshore accounts more tax-accountable.

Many Types of Withholding Agents Need 1042-S Tax Forms
The term “withholding agent” for 1042-S purposes applies to individuals and entities. Some entities making foreign income and payments and withholding taxes include U.S. corporations, partnerships, trusts, and nonprofits, U.S. owners of the branches of foreign financial institutions, and even foreign financial institutions themselves if they have U.S. account holders. Agents may also be “intermediary” entities acting on behalf of foreign interests, such as both qualified and nonqualified intermediaries, flow-through trust or partnership entities, and withholding foreign partnerships or trusts. The list of 1042-S tax-form withholding agents is long and complex, with a lot of exceptions and clarifications. It captures a sweeping host of U.S. individuals, businesses, financial planning organizations, and insurance companies.

1042-S Tax Forms Also Cover Many Types of Income and Payments
The list of U.S.-based foreign income and payments for reporting on the 1042-S tax form is also extensive. It includes items like interest payments from notional principal contracts, real-estate mortgage investments, and registered obligations. Annuity, pension, and other deferred income distributions, as well as rents and royalties and some types of gambling winnings, also belong on these forms. Fellowship amounts paid to foreign students, teachers, and researchers, payments to foreign governments or central banks, and debt cancellation are some other types of income or payments. Even foreign payments that are not subject to withholding under IRS code must still appear on a 1042-S tax form.

How Many 1042-S Tax Forms Are Necessary?
Adding to the extensive list of withholding agents and U.S. sources of income and payment is the IRS requirement that each separate beneficial owner receive its own specific form. Moreover, each 1042-S tax form includes five separate copies. Copy A goes to the IRS directly. Copy B goes to the beneficial owners for their records, as do copies C and D for attachment to federal and state tax filings. Copy E remains with withholding agents for their records.

Can You Use Substitute 1042-S Tax Forms?
Because the information contained in the 1042-S Form and Copies does not require special coding ink for IRS optical scanning purposes, the IRS suggests that withholding agents may use “substitute” 1042-S forms, as long as they conform in size and format to the original. However, the IRS prefers pre-printed 1042-S forms for accuracy and compliance.

What Is the Most Convenient Way To Get 1042-S Tax Forms?
Given the sheer number of forms individual withholding agents need, they should purchase the 1042-S form in bulk. Staples® has various types of tax forms like W-2 tax forms and copy available in bulk packaging.