Forms 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, are due on March 15, 2022. As withholding agents prepare these forms, they should keep in mind the common errors set forth by the IRS in the instructions to each form. Here are a few key reminders:
- Include all required withholding agent information (name, address, chapter 3 and chapter 4 status codes, and the employer identification number (EIN), Qualified Intermediary EIN (QI-EIN), Withholding Partnership EIN (WP-EIN), or Withholding Trust EIN (WT-EIN)) and confirm that this information is correct.
- On Form 1042, Lines 1 through 60, report the federal tax liability for payments made during the applicable quarter-monthly period and NOT the tax deposited by the withholding agent.
- Calculate the sum of the monthly totals in Section 1 and confirm that they match the amount of total tax liability reported on Lines 64b, 64c, and 64d.
- Do not include amounts reported as adjustments on Line 64a in the Record of Federal Tax Liability.
- Designate the tax liability as either a chapter 3 tax liability and report on Line 64b or a chapter 4 tax liability and report on Line 64c.
- Do not forget to complete Section 2, Reconciliation of Payments of U.S. Source FDAP Income! This section is mandatory.
As a general reminder, always review the instructions for each form and relevant IRS guidance publications before filing. Here are some helpful links:
- 2021 Instructions for Form 1042, https://www.irs.gov/pub/irs-pdf/i1042.pdf
- 2021 Instructions for Form 1042-S, https://www.irs.gov/pub/irs-pdf/i1042s_21.pdf
- 2021 Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, https://www.irs.gov/pub/irs-pdf/p515.pdf