Guide to Global Payroll Management - 2020 - D-101

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Appendix D--Federal Forms and Instructions

information on the escrow procedure for
undetermined amounts of income, see
Regulations section 1.1441-3(d)(1). For
instructions on reporting amounts
withheld during the current calendar
year that you are not depositing
pursuant to the escrow procedure, see
the instructions for Box 7, later.
14. Use code 52 (dividends paid on
certain actively traded or publicly
offered securities), 53 (substitute
payments-dividends paid from certain
actively traded or publicly offered
securities), 51 (interest paid on certain
actively traded or publicly offered
securities), 54 (substitute
payments-interest from certain actively
traded or publicly offered securities),
and 13 (royalties paid on certain publicly
offered securities) if the income paid is
described in Regulations section
1.1441-6(c)(2) and you have reduced
the rate of withholding under an income
tax treaty without the recipient providing
a U.S. or foreign TIN.
15. Use code 55 (taxable death
benefits on life insurance contracts) to
report taxable death benefits, such as
benefits paid on an insurance contract
that was acquired on a transfer for
valuable consideration. See section 101
for when death benefits are taxable.
If you paid more than one type of
income to or on behalf of the same
recipient, you must complete a separate
Form 1042-S for each income type.

Note. Although income codes are
provided for short-term OID and
notional principal contract income,
those items are not always subject to
reporting on Form 1042-S. For example,
short-term OID may need to be reported
by an NQI or flow-through entity if those
amounts are paid to foreign persons
and another withholding agent backup
withheld on those amounts under the
presumption rules. Notional principal
contract income is reportable if it is
effectively connected with the conduct
of a trade or business in the United
States or results in the payment of
interest under Regulations section
1.446-3(g)(4) or a dividend equivalent
under section 871(m) and the
regulations thereunder (for which a
Form 1042-S is required). For more
information, see the regulations under
chapter 3 and Pub. 515.

Box 2, Gross Income

For each income type, enter the gross
amount you paid (in whole dollars) to or
on behalf of the recipient during the
calendar year, including withheld tax.
Instructions for Form 1042-S (2020)

The following special procedures apply
to the reporting of gross income.
* You must report the entire amount of
a corporate distribution made with
respect to stock even if you elect to
reduce the amount of withholding on the
distribution because all or a part of the
distribution is nontaxable or represents
a capital gain dividend.
* You must report the entire amount of
a payment if you do not know at the time
of payment the amount that is subject to
withholding because the determination
of the source of the income or the
calculation of the amount of income
subject to tax depends upon facts that
are not known at the time of payment.
* If you applied the escrow procedure
under chapters 3 and 4, report the entire
amount of a payment that you
previously reported in a prior calendar
year for which you withheld tax but did
not deposit such tax under the escrow
procedure if the liability is due in the
current calendar year.
* You must report the entire amount of
gains relating to the disposal of timber,
coal, or domestic iron ore with a
retained economic interest and gains
relating to contingent payments
received from the sale or exchange of
patents, copyrights, and similar
intangible property.
* You must report only the amount of
cash paid on notional principal
contracts.
* If reporting payments to artists or
athletes who have signed a central
withholding agreement (income code
43), you must report the gross amount
paid to the artist or athlete in Box 2
(without any consideration to the
expenses to be taken into account for
purposes of determining the amount of
withholding tax pursuant to the central
withholding agreement).

Box 3

Chapter indicator. If you are reporting
amounts in Boxes 7 through 9, enter
either a "3" or "4" to indicate whether the
amounts were withheld (or paid by the
withholding agent) pursuant to chapter 3
or chapter 4. If you are reporting tax
withheld under section 5000C, or
backup withholding was applied under
the presumption rules, enter "3" as if the
tax were a chapter 3 tax.
Note. Either a "3" or "4" (but not both)
must be entered on each Form 1042-S.
If you are not reporting amounts in
Boxes 7 through 9 because you did not
withhold under chapter 3 or 4, you
should enter "3."

If you are reporting payments to U.S.
payees, enter "3" and leave Boxes 3a
and 3b blank.

Boxes 3a and 4a, Chapter 3 and
Chapter 4 Exemption Codes

In most cases, if the tax rate you
entered in Box 3b or 4b is 00.00, you
may be required to enter the appropriate
exemption code (01 through 23) from
Appendix B, later, as applicable for
chapter 3 and 4 purposes. In certain
cases, more than one exemption code
will apply. See the instructions below for
the applicable codes to determine which
code to use.

If an amount was withheld under
chapter 4 (the tax rate you entered in
Box 4b is greater than zero and is not
due to backup withholding), enter "00" in
Box 4a. If the tax rate you entered in
Box 4b is 00.00, you must enter the
applicable exemption code (13 through
21) in Box 4a. If an amount was withheld
under chapter 3 (the tax rate you
entered in Box 3b is greater than zero
and is not due to backup withholding),
enter "00" in Box 3a. If the tax rate you
entered in Box 3b is due to backup
withholding, leave Box 3a blank.
If exemption code 01 or 14
(effectively connected income) applies,
you must enter the recipient's U.S. TIN
in Box 13e if you report the income as
effectively connected with a U.S. trade
or business. If the recipient's U.S. TIN is
unknown or unavailable, you must
withhold tax at the rate of 30% (30.00)
and enter "00" in Boxes 3a and 4a.

A withholding agent should use
exemption code 06 (QI that assumes
primary withholding responsibility) only
if it is making a payment to a QI that has
represented on its Form W-8IMY that it
is assuming primary withholding
responsibility under chapters 3 and 4.
However, if the payment is made to a QI
that is acting as a QDD with respect to
the payment, the withholding agent
should instead use exemption code 22
(QDD that assumes primary withholding
responsibility).

A withholding agent should use
exemption code 07 (WP or WT) only if it
is making a payment to a foreign
partnership or trust that has represented
on its Form W-8IMY that it is a
withholding foreign partnership or trust.

A withholding agent should use
exemption code 08 (U.S. branch treated
as U.S. person) or 09 (territory FI
treated as U.S. person) (as applicable)
for chapter 3 purposes only if it is
making a payment to a U.S. branch or to

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D-101

Guide to Global Payroll Management - 2020

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