IRS Form 1042-S – IRS Forms, Instructions, Pubs 2026 – In an increasingly global economy, understanding U.S. tax obligations for foreign income is crucial for businesses, financial institutions, and non-resident aliens. IRS Form 1042-S plays a pivotal role in reporting U.S.-sourced income paid to foreign persons and the associated withholding taxes. This SEO-optimized guide covers everything you need to know about Form 1042-S, including its purpose, filing requirements, key updates for the 2025 tax year (filed in 2026), and compliance tips. Whether you’re a withholding agent or a recipient, staying informed ensures smooth tax reporting and avoids penalties.
What Is IRS Form 1042-S?
Form 1042-S, titled “Foreign Person’s U.S. Source Income Subject to Withholding,” is an information return used to report certain income paid to non-U.S. persons (foreign individuals, entities, or organizations) that is subject to U.S. withholding tax. This includes income under Chapter 3 (sections 1441-1446) and Chapter 4 (FATCA, sections 1471-1474) of the Internal Revenue Code.
The form reports U.S.-sourced fixed, determinable, annual, or periodical (FDAP) income, such as interest, dividends, royalties, rents, and compensation, as well as withholdable payments under FATCA. Even if no tax is withheld (e.g., due to a tax treaty exemption), the payment must often still be reported if it’s subject to reporting rules.
Unlike Form 1099 series (for U.S. persons), Form 1042-S is specifically for foreign recipients. Withholding agents file it with the IRS and provide copies to recipients, who may use it to claim credits or refunds on their U.S. tax returns (e.g., Form 1040-NR).
Who Must File Form 1042-S?
Every withholding agent—defined as any person or entity with control over payments subject to withholding—must file Form 1042-S for reportable amounts paid to foreign persons during the calendar year. This includes:
- U.S. individuals, corporations, partnerships, trusts, estates, or branches acting in a trade or business.
- Foreign entities if they are qualified intermediaries (QIs), withholding foreign partnerships (WPs), or withholding foreign trusts (WTs).
- Financial institutions, nominees, or publicly traded partnerships (PTPs) making distributions.
Exceptions: No filing is required for payments reported on Forms W-2, 1099 (with some caveats), 8288-A, 8805, or 8966. Individuals not in a trade or business are exempt unless withholding applies.
If you’re a withholding agent, you must also file Form 1042 (Annual Withholding Tax Return) to summarize all 1042-S forms.
Types of Income Reported on Form 1042-S
Form 1042-S covers a wide range of U.S.-sourced income subject to 30% withholding (unless reduced by treaty or exemption). Key categories include:
- Interest: General interest (code 01), deposit interest (code 29), portfolio interest (exempt if qualified).
- Dividends: From U.S. corporations (code 06), capital gains distributions (code 36), dividend equivalents (code 40).
- Royalties and Rents: Copyrights, patents (code 12), real property rents (code 11).
- Compensation: Independent personal services (code 17), artists/athletes (code 42/43).
- Other: Gambling winnings (code 28), pensions/annuities (code 15), PTP distributions (code 27/57), specified federal procurement payments (code 44).
Report even exempt amounts (e.g., treaty benefits, code 02). Do not report short-term OID/interest (≤183 days) or certain non-withholdable payments.
| Income Type | Income Code | Typical Withholding Rate |
|---|---|---|
| Dividends (U.S. Corporations) | 06 | 30% (or treaty-reduced) |
| Interest (General) | 01 | 30% |
| Royalties | 12 | 30% |
| PTP Distributions | 27 | 21-37% (ECI) |
| Gambling Winnings | 28 | 30% |
How to Fill Out Form 1042-S: Key Boxes and Fields?
Form 1042-S has a structured layout with boxes for income, withholding, and entity details. Use the most current version for accuracy. Here’s a breakdown:
- Header: Unique 10-digit form identifier; check “Amended” if correcting.
- Box 1: Income code (e.g., 06 for dividends).
- Box 2: Gross income (whole dollars, including withheld tax).
- Box 3: Chapter indicator (“3” or “4”).
- Boxes 3a/3b: Chapter 3 exemption code and tax rate (e.g., 00 for no exemption, 30.00%).
- Boxes 4a/4b: Chapter 4 exemption code and tax rate (e.g., 15 for not subject, 00.00%).
- Boxes 5-6: Withholding allowance and net income (for certain codes like scholarships).
- Boxes 7a-11: Federal tax withheld, escrow checks, overwithheld adjustments.
- Boxes 12a-12m: Withholding agent’s EIN, status codes, name, GIIN, address.
- Boxes 13a-13p: Recipient’s name, country code, address, TIN/GIIN/FTIN, status codes, LOB code, account number, DOB.
- Boxes 14-16: Primary agent, intermediary, or payer details if applicable.
- Boxes 17a-17c: State tax withheld (if any).
Use separate forms for each recipient, income type, and withholding rate. For pooled reporting (e.g., QIs), use specific status codes like 27-32 for Chapter 3 pools.
Tip: Truncate TINs on recipient copies (e.g., XXX-XX-XXXX) for privacy.
Filing Deadlines and Methods for 2026
For the 2025 tax year, file Form 1042-S with the IRS and furnish copies to recipients by March 15, 2026 (or the next business day if it falls on a weekend/holiday).
- Electronic Filing (Required): Mandatory if filing 10+ returns, for partnerships with >100 partners, or financial institutions. Use the IRS’s Information Returns Intake System (IRIS) starting January 1, 2026, for 2025 forms. The FIRE system retires after 2026. Request extensions via Form 8809 (automatic 30 days).
- Paper Filing: Allowed only if under thresholds; mail to IRS Ogden Service Center with Form 1042-T.
- Recipient Copies: Furnish by March 15; one-time 30-day extension via Form 15397.
For electronic filing steps: Select an IRS-approved provider, enter form data, review, and transmit. Retain records for at least 3 years.
Key Updates for 2025 and 2026 Tax Years
- Electronic Mandate Expansion: Starting 2026 (for 2025 forms), IRIS is required for e-filing; threshold lowered to 10 returns.
- New Box 7d: Checkbox for QIs/WPs/WTs revising pooled reporting to individual.
- New Income Codes: Codes 59-61 (consent/loan fees) optional in 2026.
- Status and Exemption Codes: New codes added; “US” valid in certain country fields. From 2026, exemption codes required for rates below 30%.
- Penalty Relief Extensions: For dividend equivalents on partnerships through 2026.
- Borrow Fees: New sourcing rules per Notice 2025-63 for refunds.
Download the latest Form 1042-S PDF here: https://www.irs.gov/pub/irs-pdf/f1042s.pdf.
Penalties for Non-Compliance
Failure to file or furnish accurate Forms 1042-S can result in penalties up to $340 per form (adjusted for inflation), plus interest. Intentional disregard increases penalties. Electronic filing non-compliance adds further fines. Mitigate by filing extensions or corrections promptly.
Conclusion
Navigating IRS Form 1042-S ensures compliance with U.S. withholding rules and helps foreign recipients claim rightful tax benefits. By using trusted IRS resources and staying updated on electronic filing changes, withholding agents can avoid costly errors. For personalized advice, consult a tax professional. If you’re filing for 2025, start preparing now to meet the March 15, 2026, deadline.