Detailed information on 1042-S Forms
- About 1042-S Modules
- Deadlines, extensions and penalties of Form 1042-S
- Correction of forms: Amended Form 1042-S
- Difference between 1042-S and 1099
- Compiling and sending 1042-S
- The software to generate 1042-S forms
- Why choose BEST IRS
- Useful information on forms 1042 and 1042-S
About 1042-S Modules
The QI agreement defines as an obligation of the QI the preparation and submission of forms 1042-S, as well as for 1042. Forms 1042-S are used to report US income and taxes. The reporting is done through as many forms 1042-S as there are different groups of payments. This is done by means of elements such as the type of income, the type of tax charged (Ch.3 or Ch.4), the percentage of tax charged, tax exemption codes and the type of beneficiary of the income.
Forms 1042-S must be reported to the IRS via the electronic forms (txt files) defined in accordance with the rules defined in the most recent IRS publication and uploaded to the platform https://fire.irs.gov. In the case of nominative 1042-S forms (e.g. in the name of other QIs), these must also be sent to the beneficiary of the form, in paper/PDF format.
The correct reporting of Forms 1042-S requires:
- total amounts of 1042 equal to the sum of all 1042-S issued
- reported amounts reconciled, i.e. correspond to those of the custodians for income code, tax rate, tax amount
- amounts of forms in line with those of 1042-S received from custodians
- the electronic forms, prepared for sending to the IRS, perfectly match the paper/PDF forms sent to the recipients
It is essential to have an optimised payment reconciliation process that allows for the rapid identification of differences, their correction and tracking of any justified standing difference.
While the electronic file must be sent to the IRS, either the PDF or the paper file can be sent to beneficiaries.
Deadlines, extensions and penalties of Form 1042-S
All forms 1042-S must be submitted by March 15th of each year, for the proceeds of the previous fiscal year. If this day is a public holiday, the deadline will be extended to the next working day.
Submission deadline of forms 1042-S can be extended through 8809 form, which must be submitted by the submission deadline.
In its publications, IRS informs of possible penalties for failure to send the form or late submission. The penalty for late submission of the electronic 1042-S to the IRS is provided for in the measure of:
- $ 50 for each form submitted within 30 days of the due date
- $ 100 for each form sent 30 days after the due date but before August 1 of the reporting year
- $ 270 for each form submitted after August 1 of the reporting year
The penalty for failure to send 1042-S to beneficiaries is also sanctioned, in cases where it is not possible to prove a reasonable cause. A sanction of $270 may be applied for each form 1042-S not sent on time.
While for the above cases there are limits (in the “best” case of $ 190,000). There is no limit and an additional penalty will be applied in cases of intentional non-compliance with these deadlines. The additional amount will be the greater of between $ 540 and 10% of the amount of the forms to be submitted.
Correction of forms: Amended Form 1042-S
A corrective 1042-S must be sent if at least one of the fields on the form sent to the IRS has changed. The 1042-S must be flagged as “Amended” to indicate that it is a correction form. The field “Amendment NO.” must show the version of the form, i.e. how many times that same 1042-s has been subject to correction. Finally, in the field “Unique form identifier” must be inserted an unique code of the form to be corrected.
Attention must be paid to the amendment activity of the 1042-S. In some cases, to correct one 1042-S multiple forms need to be sent.
Difference between 1042-S and 1099
The difference between the 1042-S form and the 1099 is in the type of US income recipient. In 1042-S are reported proceeds and taxes of Non Resident Alien, NRA. In 1099 are reported proceeds and any taxes of US Persons.
Given the above, in some cases, however, it is possible to report in pool in 1042-S the US persons.
Compiling and sending 1042-S
Every form 1042-S should be completed in electronic and paper/pdf format. The electronic file must be prepared in a text file (.txt) according to the rules defined for each year by the IRS. This file will be necessary for reporting the forms to the IRS.
The generation of the txt file, follows Publ. 1187 Specifications for Electronic Filing of Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. The file must be entirety completed with all relevant data. In short, there will be three types of records to compile:
- “T” records: they contain the master file and contact information of the entity transmitting the file. It can be the QI itself or another entity reporting for the QI.
- “W” records: the master file and contact information of the entity whose data are belonging.
- “C” records: these report the aggregated amounts of the “W” records.
- “F” records: these show the number of rows of the “W” record
The filling in of the paper/pdf format must correspond exactly to what is indicated in the electronic file. These forms are essential for internal use within the QI (archive, audit, etc.) and for sending to recipients (e.g. QI customers who also assume QI status). The following parts must be filled in:
- fields 1 to 11 with the amounts of income and tax withheld, distinguishing between those who actually collected it
- fields 12 with the master information of the QI issuing the 1042-S
- fields 13 with the receiver’s master information (depends on the type of customer of the QI and its status Ch.3 and Ch.4)
- fields 14 with name and EIN of the subject who carried out the withholding
- fields 15 with the personal information of the intermediary, if any, between the QI and the recipient
The software to generate 1042-S forms
How many 1042-S forms to produce? How to fill them in? What data should be used to obtain a correct and consistent reporting?
BEST IRS is the answer to all these questions.
By uploading its own Excel file to the software, the QI will have an immediate view of what it will have to correct in order to have data in line with the repositories and forms that comply with the regulations. All this is just a click far.
BEST IRS is provided in outsourcing mode, with no impact on the IT infrastructure of the QI. With the same Excel file, our customers can automatically produce all forms 1042 and 1042-S, updated every year according to the latest regulatory changes.
Why choose BEST IRS
- Useful information
- Useful information on forms 1042 and 1042-S
Best Reporting supports QIs in their reporting obligations.