1042-S Form Definition
A 1042-S Form — also known as IRS Form 1042-S — is an IRS tax form used in the United States to report payments to foreign persons, partnerships, corporations, estates, or trusts. A 1042-S form specifically reports payments made to non-resident aliens such as foreign workers or foreign students, that are subject to income tax withholding. A 1042-S form is filed even if no amount is deducted and withheld from the payment because of a treaty or exception to taxation, or if any amount withheld was repaid to the payee. Additionally, Form 1042-S can be used to report distributions of effectively connected income by a publicly traded partnership or nominee.
Any withholding agency or business, whether U.S.-based or foreign, who has control, receipt, disposal, or payment of any annual or periodic U.S. source of income over foreign persons must file a 1042-S form with the IRS; this includes foreign workers and foreign student workers. A 1042-S form has two copies — one sent to the IRS and the other sent to the foreign person who received the income. A nonresident alien is an individual who is not a citizen or resident of the United States and should be filing their return using Form 1040NR.
Typically, the process for the accounts payable or payroll department to file 1042-S forms is as follows:
- Run a report or gather the payments made to nonresident aliens, sometimes referred to as a Nonresident Alien Payment Report
- Review the report for accuracy, ensure that withholdings are accurate, and remove any payments that should not be reported
- Ensure that every payee/recipient has a Tax Identification Number (TIN) on file and their mailing information is up to date
- Review the 1099 supplier report and compare it against the Nonresident Alien Payment report to ensure that the payee/recipient is only found on one of these reports
- Generate the 1042-S forms and distribute to payee/recipients
Filing 1042-S forms falls on the accounts payable departments of a business, whether they are for-profit or nonprofit organizations. It is up to accounts payable teams to report the income and taxes withheld on payments made to suppliers/ vendors; it is also up to those teams to keep current with the new IRS compliance on payments to to nonresident aliens, foreign entities, and foreign governments.
A good best practice to employ as a payer is to identify their payees as U.S. or non-U.S. individuals or entities before their first payment release to them, similar to the best practice of having a W-9 on file for every supplier/vendor before first payment. Most times, regardless of the name on the form, U.S-sourced income payments made to foreign vendors are subject to 1042-S form reporting, whether taxes are required to be withheld or not.