Non-US Citizen With US Income Subject to Withholding Do Not Ignore Form 1042-S
1042-S - What Is It and Who Needs to Complete It?
This form has to be completed by a Withholding Agent - this obscure term generally refers to bank or broker that pays passive income and must withhold tax on the disbursals, but the overall scope is broader than that.
- “You are a withholding agent if you are a U.S. or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. A withholding agent may be an individual, corporation, partnership, trust, association, or any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies. You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment.
Great - How Does This Affect Me (Taxpayer)?
If you are a Non-US citizen who receives passive income from a US source, there is a strong likelihood there is tax withheld from payment disbursal. You are likely then in receipt of form 1042-S, which must be added to your US tax return. Potentially your withholding may be too large and you may be eligible for a refund as this income may be non-taxable due to your treaty benefits. Or effective tax rate is lower than default amount of withholding. WIth correctly filed form 1042-S attached to your US non-resident tax return, potential refunds will not be delayed.
Foreign Students, Teachers, or Trainees Under F, J, M, or Q Visas
If you fit into this subset, you are considered engaged in trade or business and thus required to file a US tax return. Many individuals with these visas are eligible for employment in the U.S. and eligible for SS# as well.
If not eligible, you may request an ITIN from the IRS with form W-7 (contact your tax preparer for assistance). Generally, anyone who meets the substantial presence test must file form 1040, but there are exceptions for these visa types. If you meet the exception, you should file U.S. non-resident tax return form 1040NR..
Form 1042-S should be reviewed to ensure that it contains accurate information and attached to your Non-Resident tax return (Form 1040NR)
This is especially important if you receive a scholarship or fellowship, as this income may be partially or completely exempt from taxation under the terms of a tax treaty.
Failure to properly attach form 1042-S (copy B) to your tax return may impact your ability to receive this refund in a timely manner. Contact the withholding agent for amended form 1042-S if it contains inaccurate information.
What to look for (common errors)
A common error is to have the Form 1042-S listing two or more recipients in box 13a. The 2016 instructions to Form 1042-S have been updated to clarify that in the case of joint owners, Form 1042-S can only list one of the owners in box 13a.
Form Specifics & Why Copy B (if you’re really interested)
Withholding agents must provide five copies of Form 1042-S.
- Copy A should go to the IRS; Copies B, C and D to the recipient of the income; and copy E should be retained by the withholding agent.
- All information, including the name of the taxpayer, must match exactly on all copies of Form 1042-S.