Many non-citizens of the U.S. file for income taxes while working under US organizations.
The IRS Form 1042-S is a Federal tax form that US-based businesses and institutions file when paying non-residential employees. The official name for this form is ‘The Foreign Person’s US Source Income Subject to Withholding.’
The form can be used to report incomes withheld under Chapters 3 and 4 of the IRS, procurement payments to foreign individuals, payments of eligible deferred compensation items subject to withholding, etc.
Who Should File for 1042-S?
The form applies to people who are non-citizen aliens, foreign trusts, foreign corporations, foreign partners, and foreign estates working for US-based businesses. Their employers or withholding agents should report their taxable incomes in the 1042-S.
But if they work for foreign companies while being non-residential aliens, they don’t need a 1042-S form.
Also, employers who pay foreign freelancers must provide 1042-S forms for each at the end of the year. However, if they work with US-based freelancers, they only need to report their payments in Form 1099-NEC.
Additionally, according to the instructions for 1042-S, scholarships or fellowship incomes paid to foreign students, teachers, and researchers also need to be reported in these forms.
What Incomes Do You Report in a 1042-S Form?
Whether you’re an employer in a company or an institution, you’ll need to report various types of income in individual 1042-S forms for every individual working under you.
Here’s a list of some of the taxable incomes that you must report in the form:
Income from real estate;
Compensations for dependent and independent personal services performed in the US;
Winnings in certain gamblings;
Effectively connected income, which includes amounts connected with the conduct of a trade or business in the US, with or without the requirement of a withholding certificate;
Interest on deposits to some non-residential aliens;
Foreign registered obligations;
Amounts paid to international organizations, foreign governments, and foreign central banks.
How to Know if You’re Getting these Forms?
To understand whether you’re getting a 1042-S form or not, you’ll need to look at Form W-2, Wage, and Tax Statements.
If the amount in box 1 labeled ‘Wages, tips, other compensation’ is less than the amount you put in box 16 labeled ‘State wages, tips, etc.,’ you’ll definitely need to fill up a 1042-S for wages.
Are there Penalties for Not Submitting Such a Form?
As an employer, you’ll have to face penalties if you fail to file a 1042-S in due time for every foreign employee you work with. However, the penalty may be excused if your delay is due to a reasonable cause and not neglect.
Here’s a list of penalty fees against the amount of delay in filing the form in 2022:
If you file the form less than 30 days late, you’ll face a $50 penalty per form.
If you file the form over 30 days late until August 1, 2022, your penalty will be $110 per form.
If you file the form after August 1, 2022, your penalty will be $280 per form.
If you disregard the form intentionally, you’ll have to pay $570 per form with no maximum limit.
How Can You Submit This Form?
You must distribute this form among all your foreign and non-residential alien recipients by March 15, reflecting the payments you made to each individual in the prior year.
You’ll need to file it with the IRS, and once it’s completed, the copy will be sent to the employees or businesses.
The IRS instructs you must submit separate forms for the following:
Each foreign individual who received compensation from you, regardless of whether you withheld tax or not;
The different tax rates applicable for the different types of incomes you paid to the said foreign individual(s);
Every type of income you paid to the foreign individual(s).
You can submit the forms on paper or electronically. However, if you’re submitting forms for more than 250 individuals, you must submit them electronically.