What’s new on the Form 1042?

Your Guide to State, Local, Federal, Estate + International Taxation

The IRS has issued a draft of the 2015 Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign persons and instructions to that form.

The new changes from the 2014 form include two things:

  1. It is now REQUIRED (previously optional) to provide codes indicating the withholding agent status, Chapter 3 and 4 status codes on page 1 of Form 1042.
  2. It is now REQUIRED (previously optional) to reconcile certain income paid by the agent with the amount of that income reported on the 1042-S. This is Section 2 of page 2 of the form, Reconciliation of U.S. Source FDAP Income.

Please click here for the new 2015 form and instructions regarding Form 1042.

Also, remember to make sure W-8BEN forms and W-8BEN-E forms are updated and current. These forms are for foreign persons or entities that are required to withhold U.S. Tax at a 30% rate (or a reduced rate pursuant to an income tax treaty claim) on income they receive from U.S. sources or used to document their status for purposes of Chapter 3 and Chapter 4. These forms are valid for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect. The IRS gives the example: if the form was signed on September 30, 2014 then it remains valid through December 31, 2017. But don’t just rely on the 3 year rule; make sure the information is still correct and current.

Keep in mind, the aforementioned information is general in nature. Please consult with your tax adviser for specific advice.

By Chris Morrison