IRS Form 1042-S
American tax laws are hard enough for Americans to understand. It can be much more difficult when you add a person who has income in the United States, but is not a resident, nor a US citizen and received an IRS Form 1042-S reporting US-source income. For folks with US source income, it can seem like an endless maze. That is where Tax Samaritan can help you find the forms you need and get your tax return filled out properly so that you can take care of your US tax obligations without paying more tax than you need to pay.
Why Did I Receive An IRS Form 1042-S?
The Form 1042-S, Foreign Person’s U.S. Source Income Subject To Withholding, is used to report amounts paid to foreign persons including non-resident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts that are subject to income tax withholding.
A withholding agent must file an information return on Form 1042-S to report amounts paid to foreign persons that are reportable under the Internal Revenue Code. In general, every withholding agent or intermediary, whether U.S. or foreign, who has control, receipt, custody, disposal or payment of any fixed or determinable, annual or periodic U.S. source income over foreign persons, must file these forms with the IRS. It includes withholding on “effectively connected income” of partnerships, and to Foreign Investment in Real Property Tax Act (FIRPTA) withholding.
With globalization and the shrinking world we live in, the issuance of the Form 1042-S is becoming more common. Nations do not want to pass up a chance to collect some taxes, and of course the United States is no exception.
The IRS Form 1042-S Is Complicated
This can get complicated because there are different kinds of income. The United States requires that a separate IRS Form 1040-S must be used for each type of income received. This for is for recording the money withheld from the pay and filed by the person who is doing the paying. It is possible that a person may receive this form and a W-2 form reporting withheld earnings.
Income withheld must be reported on things like gambling winnings, royalties from a book, scholarships or teachers or researchers. Some dividends paid by American corporations can also fall under this area. Income from real estate, pensions, alimony are just a few more examples of the types of income that must have money withheld for taxes, and the 1042-S is the form uses. While normal income is not included here, it can be in some cases.
Income of foreign persons can get even more complicated if there is a tax treaty involved. Some nations have a tax treaty with the U.S. to help avoid forcing the person who lives in one country and gains income from another country, to have to pay taxes twice. There can be limits to the types of income that are covered by such a treaty, and on the amounts to be reported and the applicable tax-withholding rate.
The normal tax rate is 30 percent for non-residents. If there is a tax treaty involved, that number may change. If you have different types of income, for example if you were getting book royalties and payment for speaking engagements, you would get two – one for each type of income. The form has a booklet that explains all the different types of income and work.
These forms are sent to employees or the person who was paid, as well as a copy to the IRS. It is similar to a W-2 in that regard. It is a record of income. The IRS Form 1042-S is needed in order to prepare the non-resident tax return. While there may appear to be some duplication, because you could get a W-2 reporting the income as well, you they can be separated again when the return is prepared.
Generally, every nonresident alien individual, nonresident alien fiduciary, and foreign corporation with United States income, including income that is effectively connected with the conduct of a trade or business in the United States, must file a United States non-resident tax return. If you have received a Form 1042-S, it is a good idea to get some professional help because of the complexity of the tax laws, exceptions and agreements between nations.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
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