Glossary of Human Resources Management and Employee Benefit Terms
In most cases, a non-citizen is subject to U.S. tax on income from U.S. sources. Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, is used to report amounts paid to foreign persons (including those presumed to be foreign) by a United States based institution or business. This applies to non-resident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts that are subject to income tax withholding.
The form reports amounts withheld under Chapter 3 or Chapter 4 and amounts that were withheld that were then repaid to the payee. Even if no amount has been deducted from the payment due to a treaty or taxation exception, Form 1042-S is used.
Each type of income received requires a separate 1042-S form. Some of the kinds of income reported include:
Dividends paid by American corporations
Income from real estate
Normal income (in some cases)
Interest on deposits
Compensation for personal services performed in the U.S.
For more information, see the Instructions for Form 1042-S from the IRS.
Any withholding agent (a person or institution, such as an employer, university, or business) that paid any amount subject to withholding to a foreign person must submit a 1042-S. The 1042-S is filed with the IRS and a completed copy is also sent to the employee or business.
A separate Form 1042-S is required for:
Each recipient (whether or not you withheld tax)
Each tax rate of a specific type of income paid to the same recipient
Each type of income paid to the same recipient
IRS Form 1042-S can be filed on paper or electronically. Electronic filing is required if there are 250 or more forms from the withholding agent.
Sometimes a 1042-S is distributed for informational purposes, such as when mailed to resident aliens. In this case, it does not need to be included on your return. If the amounts in Box 7 (U.S. Federal Tax Withheld) and Box 10 (Withholding Credit) of the form are both zero, then the 1042-S is just for informational purposes. Otherwise, it will need to be reported.
Tax laws can be complicated, especially for those who aren’t residents of the U.S. Consult with a tax professional for information and guidance on individual circumstances.
Those who are not residents of the United States but receive money from any U.S. source, even passive sources like interest, should receive a 1042-S for each type of income. Foreign students, postdoctoral fellows at American universities, teachers, trainers, and employees who are non-resident aliens under a tax treaty can usually expect to use the 1042-S form.
Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, is used to report tax withheld on the income of foreign persons. Therefore, Form 1042 is concerned with how much income will be withheld for tax purposes, and Form 1042-S is only concerned with payments made to foreign persons.
A withholding entity only needs to file a Form 1042 with the IRS, not with the employee. In addition, Form 1042 can be filed by itself, while Form 1042-S must always be filed together with Form 1042-T.