Guide to Global Payroll Management - 2020 - D-79

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Appendix D--Federal Forms and Instructions

2020

Instructions for Form 1042-S

Department of the Treasury
Internal Revenue Service

Foreign Person's U.S. Source Income Subject to Withholding
Section references are to the Internal Revenue
Code unless otherwise noted.

Future Developments

For the latest information about
developments related to Form 1042-S
and its instructions, such as legislation
enacted after they were published, go to
IRS.gov/Form1042S.

General Instructions

What's New

Reliance on proposed regulations
reducing burden under FATCA and
Chapter 3. On December 18, 2018, the
Internal Revenue Service and
Department of Treasury issued
proposed regulations (83 FR 64757) to
reduce taxpayer burden with respect to
certain requirements under Chapters 3
and 4 of the Code. For 2020, a
withholding agent may rely on the
following provisions in connection with
completing Form 1042-S.
* Withholding and reporting in a
subsequent year. A partnership or
trust that is permitted to withhold in a
subsequent year with respect to a
foreign partner's or beneficiary's share
of income for the prior year may
designate the deposit of the withholding
as attributable to the preceding year and
in some cases a partnership is provided
an extended due date for filing and
furnishing Form 1042-S. See the
instructions for Box 7c, later.
* Adjustments to overwithholding
under the reimbursement and set-off
procedures. A withholding agent may
make adjustments to overwithholding
using either the reimbursement or
set-off procedures until the extended
due date for filing Form 1042-S (unless
the Form 1042-S has already been filed
or furnished). Additionally, a withholding
agent may use the extended due date
for filing a Form 1042 to claim a credit
for any adjustments made to
overwithholding. See the instructions for
Box 9, later.
Boxes 3b and 4b (tax rates). The
revised backup withholding rate under
section 3406 (24%) has been added to
the Valid Tax Rate Table, later.

Mar 09, 2020

Boxes 12b, 12c, 13f, 13g, 15b, 15c,
16d, and 16e (Chapter 3 Status
Code). Chapter 3 Status Codes 01
(U.S. Withholding Agent - FI), 02 (U.S.
Withholding Agent - Other), and 34
(U.S. Withholding Agent - Foreign
branch of FI) have been deleted, and
Chapter 3 Status Codes 36 (Foreign
Government - Integral Part) and 37
(Foreign Government - Controlled
Entity) have been added. Chapter 3
Status Code 19 has been updated from
"Government or International
Organization" to "International
Organization."

Box 12f (country code). If the
withholding agent is a U.S. person or a
foreign branch of a U.S. person, filers
are now permitted to enter "US" in
box 12f (even though "US" is not a code
on the list at IRS.gov/CountryCodes).

Reminders

Withholding rates. The rate of
withholding under section 1446 by a
publicly traded partnership on a
distribution of income effectively
connected to a U.S. trade or business is
21% for corporate partners and 37% for
all other partners.
The rate of withholding by a Qualified
Investment Entity on a distribution to a
nonresident alien or foreign corporation
that is treated as gain from the sale or
exchange of a U.S. real property
interest by the shareholder is 21%.

Qualified derivatives dealers
(QDDs). These instructions provide
guidance on how to report payments on
Form 1042-S that are made to and by
QDDs. See Payments by U.S.
Withholding Agents and Amounts Paid
by Qualified Intermediaries, later. For
more information on the withholding and
reporting requirements associated with
payments made to and by QDDs, see
Rev. Proc. 2017-15. See also Notice
2020-2 (2020-3 I.R.B. 327), which
extends the phase-in period provided in
Notice 2018-72, 2018-40 I.R.B. 522, for
certain provisions of the section 871(m)
regulations for two years, including for
certain requirements of a qualified
derivatives dealer (QDD).

Foreign Account Tax Compliance
Act (FATCA). Form 1042-S reports
payments and amounts withheld under
the provisions commonly known as
FATCA or Chapter 4 of the Internal
Revenue Code (chapter 4) in addition to
those amounts required to be reported
under Chapter 3 of the Internal Revenue
Code (chapter 3). Form 1042-S requires
the reporting of an applicable exemption
to the extent withholding under
chapter 4 did not apply to a payment of
U.S. source fixed or determinable
annual or periodical (FDAP) income
(including deposit interest) that is
reportable on Form 1042-S. For
payments to intermediaries,
flow-through entities, and recipients,
Form 1042-S requires that the chapter 3
status (or classification) and, when the
payment reported is a withholdable
payment, the chapter 4 status, be
reported on the form according to the
codes provided in these instructions.
For the requirement of a withholding
agent to file a Form 1042-S for
chapter 4 purposes, see Regulations
section 1.1474-1(d).
Interest on deposits. Deposit interest
described in section 871(i)(2)(A)
aggregating $10 or more paid to certain
nonresident alien individuals with
respect to a deposit maintained at an
office within the United States and held
by a resident of certain countries must
be reported on Form 1042-S. For more
information, see Interest on deposits
paid to certain nonresident aliens in the
bullet list under Amounts Subject to
Reporting on Form 1042-S, later.

Substitute forms. A substitute form
furnished to a recipient must conform in
format and size to the official IRS form
and contain the exact same information
as the copy filed with the IRS. However,
the size of the form may be adjusted if
the substitute form is presented on a
landscape oriented page instead of
portrait. Only one Form 1042-S may be
submitted per page, regardless of
orientation. Withholding agents that
furnish a substitute Form 1042-S (Copy
B, C, or D) to the recipient must furnish
a separate substitute Form 1042-S for
each type of payment of income (as
determined by the income code in Box
1). Withholding agents are no longer

Cat. No. 64278A

D-79

Guide to Global Payroll Management - 2020

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