Appropriate Use of Form 1042

Tax Professionals Resource
September 28, 2012 — 1,655 views  
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Internal Revenue Service (IRS) Form 1042 is the annual withholding tax return for foreign persons with U.S. source income. This form is often accompanied by Form 1042-S. It may be filed electronically or as a paper submission. Extensions are available, but those who are required to file and fail to do so may be subject to interest and penalties.

Who Must File Form 1042

All withholding agents and intermediaries who receive, control, dispose of, pay or otherwise have custody of U.S. source income must file Form 1042 as an annual tax return. This includes all people who are required to file Form 1042-S and those who pay investment income to foreign organizations subject to taxation under 26 U.S.C. 4948. 

Withholding agents may be individuals, corporations, partnerships, trusts or other entities, including U.S. agents who pay U.S. source income to foreign persons. Form 1042-S is required by all withholding agents who pay any of the following amounts:

• Corporate distributions
• Interest and royalties
• Compensation for services performed in the U.S.
• Annuities and pensions
• Gambling winnings
• Contract income
• Academic scholarships or fellowships
• Other qualifying amounts

Withholding agents required to file multiple Forms 1042-S may consolidate the amounts on a single Form 1042.

When to File Form 1042

Form 1042 and any accompanying Forms 1042-S must be filed electronically or as paper submissions by March 15 of the calendar year following the year the payment was made. In addition, a copy of Form 1042-S must be furnished to each recipient of the payment.

If Form 1042 cannot be filed by the deadline, then an extension to file may be requested by filing Form 7004. However, the granting of an extension to file does not grant an extension to pay any tax due. An extension to file Form 1042-S must be requested by filing Form 8809. The first Form 8809 submitted automatically grants a 30-day extension. A second Form 8809 can then be submitted for additional time.

Interest and Penalties

Withholding agents who fail to file Form 1042 or Form 1042-S on time may be liable for interest and penalties. The standard penalty for failing to file Form 1042 is 5 percent of the tax owed per month late, but the penalty is capped at 25 percent. Failing to file Form 1042-S incurs the following penalties:

• If it is filed within 30 days of the due date, then the penalty is $30.
• If it is filed after 30 days but before August 1, then the penalty is $60.
• If it is filed after August 1, then the penalty is $100.

Tax Professionals Resource