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You must file Forms 1042 and 1042-S to report tax withheld on fixed or determinable annual or periodic income. Do not use these forms to report tax withheld on the following:
Form 1042. Every U.S. withholding agent who has the control, receipt, custody, disposal, or payment of fixed or determinable annual or periodic income (as previously defined) and each Canadian withholding agent described earlier under Withholding Agent, must file an annual return on Form 1042 by March 15 of the year following the end of a calendar year. (If March 15 falls on a Saturday, Sunday, or legal holiday, the due date is the next business day.) You must file Form 1042 even though you did not withhold or deduct any income tax because of a specific exemption under Chapter 3 or under an income tax treaty between the United States and a foreign country.
You must file Form 1042 with the Internal Revenue Service Center, Philadelphia, PA 19255.
Form 1042-S. Every U.S. withholding agent must transmit with the annual Form 1042 the information called for on Form 1042-S. Form 1042-S must be filed by the due date for filing Form 1042. This information is furnished magnetically, electronically, or on an original paper Form 1042-S. A separate Form 1042-S (or tape record) is required for each payee (recipient) of income to whom you made payments during the preceding calendar year regardless of whether you withheld or were required to withhold tax. You may use a separate Form 1042-S for each type of income that you paid to the same payee; or you may report more than one specific type of income on the same Form 1042-S for the same payee.
You must furnish a Form 1042-S for each recipient even though you did not withhold tax because you released the tax withheld to the recipient or because the income payment was exempt from tax under certain provisions of the Internal Revenue Code, under a regulation, ruling, or procedure issued by the IRS, or under a U.S. income tax treaty. When you have adjusted the amount of the tax withheld during the calendar year for overwithheld amounts, show the net amount of tax withheld on the Form 1042-S.
Magnetic media reporting. If Form 1042-S is filed on paper, it must accompany Form 1042. However, withholding agents or their agents generally must use magnetic or electronic media to file 250 or more Forms 1042-S with the IRS. You are encouraged to file electronically or magnetically even if you are not required to.
A completed Form 4419, Application for Filing Information Returns Magnetically/ Electronically, should be filed with the Martinsburg Computing Center at least 30 days before the due date of the return. Returns may not be filed magnetically or electronically until the application has been approved by the IRS.
For information and instructions on filing Forms 1042-S on magnetic media, get Publication 1187, Specifications for Filing Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding Magnetically/ Electronically.
Interest payments to a nonresident alien individual who resides in Canada and is not a U.S. citizen. If you pay interest to a nonresident alien individual who resides in Canada and is not a U.S. citizen, you may have to report it on Form 1042-S. This reporting requirement generally applies to interest that a) is on a deposit maintained at a bank's office in the United States and b) is not effectively connected with a trade or business within the United States. However, this reporting requirement does not apply to interest paid on certain bearer certificates of deposit, as described in section 1.6049-8(b) of the Treasury Regulations if you pay that interest outside the United States.
How to report. Although you only have to report the interest paid to residents of Canada who are not U.S. citizens, you can comply by reporting payments to all foreign persons receiving bank deposit interest, if that way is easier for you. This interest is not subject to backup withholding.
When to report. This information reporting is being phased in over a three-year period that began in 1997. You must report on Form 1042-S the bank deposit interest paid after you receive the Form W-8.
Determining residency. You determine whether a payee is a Canadian resident based on the address in the country of permanent residence required to be provided on the Form W-8. If you have actual knowledge that the payee is a U.S. person, you must report the payment on Form 1099-INT.
Statements to payees. You must furnish a statement to each payee for whom you are filing a Form 1042-S (or magnetic media report) with the IRS by the due date for filing Forms 1042 and 1042-S. You may use a copy of the official Form 1042-S for this purpose. Or, you may provide payees with the information together with or on other (commercial) statements or notices. These statements must clearly identify the type of income (as described on the official form), the amount of tax withheld, the withholding rate (including 0% if exempt), and the country involved.
You must get prior annual approval to use a substitute Form 1042-S unless it meets the requirements listed in Publication 1167, Substitute Printed, Computer-Prepared and Computer-Generated Tax Forms and Schedules. Get Publication 1167 for more information.
Extension of time to file. You may request an extension of time to file Form 1042 by filing Form 2758, Application for Extension of Time to File Certain Excise, Income, Information, and Other Returns. You may request an extension of time to file Form 1042-S by filing Form 8809, Request for Extension of Time to File Information Returns. You should send Forms 2758 and 8809 far enough in advance of the due date of Forms 1042 and 1042-S to allow the IRS time to consider your application and to reply before the due date of the return.
Penalties. The penalty for not filing Form 1042 when due (including extensions) is usually 5% of the unpaid tax for each month or part of a month the return is late, but not more than 25% of the unpaid tax.
A penalty may be imposed for failure to file Form 1042-S when due (including extensions), or for failure to provide complete and correct information. The amount of the penalty depends on when you file a correct Form 1042-S. The penalty for each Form 1042-S is:
A small business is a business that has average annual gross receipts of not more than $5 million for the most recent 3 tax years (or for the period of its existence, if shorter) ending before the calendar year in which the Forms 1042-S are due.
If you fail to provide a complete and correct statement to each payee, a penalty of $50 for each failure may be imposed. The maximum penalty is $100,000 per year.
If you intentionally disregard the requirement to report correct information, the penalty for each Form 1042-S (or payee statement) is the greater of $100 or 10% of the total amount of the items that must be reported, with no maximum penalty.
Failure to file on magnetic media. If you are required to file on magnetic media but you fail to do so, and you do not have an approved waiver, you may be subject to a penalty of $50 per return for failure to file Form 1042-S on magnetic media unless you show reasonable cause. The penalty applies separately to original and corrected returns.
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