Payers to Foreign Persons
Form 1042-S – U.S. Source Income of a Foreign Person Subject to Withholding
Form 1042 – Annual Tax Return for U.S. Withholding Tax on Income of Foreign Persons
Form 1042-T – Annual Summary and Transmittal of Forms 1042-S
Extension
Form 8809 – Application for Extension of Time to File Information Returns
What Is This About?
These forms are used by U.S. entities making payments to foreign individuals or businesses. They report income subject to withholding tax and ensure compliance with U.S. tax laws.
Form 1042-S is issued to foreign recipients to report income sourced from the U.S., including interest, dividends, royalties, and compensation.
Form 1042 is filed annually by withholding agents (such as businesses or financial institutions) to report taxes withheld on payments to foreign persons.
Form 1042-T summarizes and transmits all 1042-S forms submitted by a business.
Form 8809 allows businesses to request extra time to file these reports.
Why Is This Important?
Failure to file or withhold properly can result in penalties and interest.
The IRS monitors these transactions closely to prevent tax evasion through foreign accounts.
Withholding agents (employers, banks, corporations) must ensure they collect and remit the correct tax amounts to avoid liability.
Penalties for Form 1042
5% of the unpaid tax balance per month of delay, up to a maximum of 25%. (IRC § 6651(a)(1))
0.5% of the unpaid balance per month of delay, up to a maximum of 25%. (IRC § 6651(a)(2))
$330 penalty per Form 1042-S not filed.
$630 or 10% of the unreported payment amount for willful noncompliance. (IRC § 6721)
Up to 5 years in prison and a fine of $250,000 for individuals or $500,000 for corporations for tax fraud. (IRC §§ 7201-7206)
These penalties apply to U.S. withholding agents who fail to file, pay, or report correctly when dealing with foreign payees under Form 1042 and 1042-S.
Key Risks:
Late filing of Form 1042 triggers a 5% penalty per month, maxing out at 25% of the unpaid tax.
Late payment of tax incurs a 0.5% penalty per month, also maxing out at 25%.
Failure to file Form 1042-S results in a $330 fine per form.
Willful failure to report payments can lead to severe fines or even criminal charges.
Intentional tax evasion can result in prison time and substantial fines.