Instructions for IRS Form 1042 - Annual Withholding Tax Return for U.S. Source Income of Foreign Persons 2018

January 1, 2018 "Instructions For Irs Form 1042 - Annual Withholding Tax Return For U.s. Source Income Of Foreign Persons" contain the updated filing procedures for the IRS-issued Form 1042. Download your copy of the instructions by clicking the link below.

IRS Form 1042 is a tax form issued by the United States Internal Revenue Service.

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2018
Department of the Treasury
Internal Revenue Service
Instructions for Form 1042
Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
Section references are to the Internal Revenue
must complete if it made any payments in
Chapter 3 and 4 status codes. The
Code unless otherwise noted.
its QDD capacity that are reportable on
chapter 3 and 4 status codes of
this form. For more information on the
withholding agents are required
Future Developments
withholding and reporting requirements of
regardless of the types of payments
a QDD, see the QI Agreement in Rev.
For the latest information about
reported on this form.
Proc. 2017-15, available at
IRS.gov/irb/
developments related to Form 1042 and
Escrow procedure. See the instructions
2017-03_IRB#RP-2017-15. See also
its instructions, such as legislation
for
Lines 1 through
60, later, if you are
section 871(m).
enacted after they were published, go to
using the escrow procedure under
IRS.gov/Form1042.
These instructions provide guidance to
Regulations section 1.1471-2(a)(5)(ii) or
QDDs regarding the proper withholding
What's New
1.1441-3(d) (and are not depositing the
agent status code to use when filing Form
amount of tax withheld with the IRS during
1042 (and Form 1042-S). See
Chapter 3
New field for employer identification
the year).
and 4 status codes of withholding
agent,
number (EIN) of a qualified derivatives
later.
General Instructions
dealer (QDD). A QDD that must
complete section 4 of the form should now
Potential 871(m) transactions. Section
3 of Form 1042 applies to payments made
include its regular EIN (not its QI-EIN) in
Purpose of Form
by a withholding agent under any potential
the field provided on the form (rather than
Use Form 1042 to report the following.
as part of the attached statement). See
section 871(m) transaction (rather than
The tax withheld under chapter 3
Section 4. Dividend Equivalent Payments
just payments made under notional
(excluding withholding under sections
by a Qualified Derivatives Dealer
(QDD),
principal contracts or other derivatives
1445 and 1446 except as indicated below)
later.
contracts that reference a U.S. stock or
on certain income of foreign persons,
underlying security). Any withholding
Centralized partnership audit regime.
including nonresident aliens, foreign
agent making such a payment must
Section 1101 of the Bipartisan Budget Act
partnerships, foreign corporations, foreign
complete Section 3.
(BBA) of 2015 repealed the TEFRA
estates, and foreign trusts.
Line 63c, Adjustments to overwith-
partnership procedures and the Electing
The tax withheld under chapter 4 on
Large Partnership (ELP) provisions and
holding. Withholding agents that reduce
withholdable payments. For the
replaced them with a new centralized
their withholding by repaying a beneficial
withholding requirements of chapter 4, see
partnership audit regime effective for
owner in the year following the calendar
Regulations sections 1.1471-2(a),
partnership tax years beginning on or after
year of overwithholding pursuant to the
1.1471-4(b), and 1.1472-1(a).
reimbursement or set-off procedures
January 1, 2018. The new regime
The tax withheld pursuant to section
should report such repayments on
provides for determination, assessment,
5000C on specified federal procurement
and collection of underpayments at the
line 63c(1). Withholding agents that
payments.
partnership level unless certain elections
increase their withholding in the year
The tax withheld under section 877A on
are made by the partnership. Under these
following the calendar year of
payments of eligible deferred
rules, a partnership (or a pass-through
underwithholding by withholding on future
compensation items or distributions from
partner) may be required to withhold under
payments made to a beneficial owner or
nongrantor trusts to a covered expatriate.
from other property or additional
chapter 3 or chapter 4 when there has
Payments that are reported on Form
been an adjustment under the centralized
contributions of a beneficial owner that are
1042-S under chapter 3 or 4. See
partnership audit regime to an item of
held in custody or otherwise controlled by
Regulations section 1.1474-1(d)(2)(i) for
income or gain allocable to a foreign
the withholding agent should report the
the definition of a chapter 4 reportable
person (or any other person subject to
additional withholding on line 63c(2).
amount (which are amounts required to be
withholding). If the adjustment is to an
Withholding agents should also report on
reported on Form 1042-S for chapter 4
line 63c(2) any other amounts withheld in
amount subject to withholding that is
purposes) and Regulations section
the year following the calendar year in
reportable on Form 1042, the partnership
1.1461-1(c)(2) for amounts subject to
(or pass-through partner) should report
which the related payment was made (to
reporting for chapter 3 purposes.
the withholding on Form 1042 for the year
the extent permitted under an applicable
Certain distributions subject to section
in which it pays the tax required to be
regulation section in chapter 3 or 4). See
1445 withholding tax. Publicly traded
withheld. See section 6241(9).
the instructions for
Lines 63a through
63e,
trusts, real estate investment trusts, and
later.
Reminders
regulated investment companies that are
Lines 65a and 65b. Withholding agents
qualified investment entities (as defined
should use line 65b to report deposits of
Qualified derivatives dealers (QDDs).
under section 897(h)(4)) must withhold
tax withheld in the year following the
A withholding agent that is a Qualified
section 1445 tax on certain distributions
calendar year in which the related
Intermediary (QI) acting as a QDD must
and report such amounts on Form 1042.
payment was made. See
Deposit
assume certain withholding and reporting
For more information, see Regulations
Requirements, later, for when a
responsibilities with respect to payments
section 1.1445-8 and the Instructions for
withholding agent should designate a
made on potential section 871(m)
Form 1042-S.
deposit as being made for the calendar
transactions in its QDD capacity. Form
Publicly traded partnerships (section
year in which the payment was made.
1042 includes Section 4, which a QI that is
1446 withholding tax). For purposes of
a QDD (or has a branch that is a QDD)
Nov 27, 2018
Cat. No. 54843T
2018
Department of the Treasury
Internal Revenue Service
Instructions for Form 1042
Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
Section references are to the Internal Revenue
must complete if it made any payments in
Chapter 3 and 4 status codes. The
Code unless otherwise noted.
its QDD capacity that are reportable on
chapter 3 and 4 status codes of
this form. For more information on the
withholding agents are required
Future Developments
withholding and reporting requirements of
regardless of the types of payments
a QDD, see the QI Agreement in Rev.
For the latest information about
reported on this form.
Proc. 2017-15, available at
IRS.gov/irb/
developments related to Form 1042 and
Escrow procedure. See the instructions
2017-03_IRB#RP-2017-15. See also
its instructions, such as legislation
for
Lines 1 through
60, later, if you are
section 871(m).
enacted after they were published, go to
using the escrow procedure under
IRS.gov/Form1042.
These instructions provide guidance to
Regulations section 1.1471-2(a)(5)(ii) or
QDDs regarding the proper withholding
What's New
1.1441-3(d) (and are not depositing the
agent status code to use when filing Form
amount of tax withheld with the IRS during
1042 (and Form 1042-S). See
Chapter 3
New field for employer identification
the year).
and 4 status codes of withholding
agent,
number (EIN) of a qualified derivatives
later.
General Instructions
dealer (QDD). A QDD that must
complete section 4 of the form should now
Potential 871(m) transactions. Section
3 of Form 1042 applies to payments made
include its regular EIN (not its QI-EIN) in
Purpose of Form
by a withholding agent under any potential
the field provided on the form (rather than
Use Form 1042 to report the following.
as part of the attached statement). See
section 871(m) transaction (rather than
The tax withheld under chapter 3
Section 4. Dividend Equivalent Payments
just payments made under notional
(excluding withholding under sections
by a Qualified Derivatives Dealer
(QDD),
principal contracts or other derivatives
1445 and 1446 except as indicated below)
later.
contracts that reference a U.S. stock or
on certain income of foreign persons,
underlying security). Any withholding
Centralized partnership audit regime.
including nonresident aliens, foreign
agent making such a payment must
Section 1101 of the Bipartisan Budget Act
partnerships, foreign corporations, foreign
complete Section 3.
(BBA) of 2015 repealed the TEFRA
estates, and foreign trusts.
Line 63c, Adjustments to overwith-
partnership procedures and the Electing
The tax withheld under chapter 4 on
Large Partnership (ELP) provisions and
holding. Withholding agents that reduce
withholdable payments. For the
replaced them with a new centralized
their withholding by repaying a beneficial
withholding requirements of chapter 4, see
partnership audit regime effective for
owner in the year following the calendar
Regulations sections 1.1471-2(a),
partnership tax years beginning on or after
year of overwithholding pursuant to the
1.1471-4(b), and 1.1472-1(a).
reimbursement or set-off procedures
January 1, 2018. The new regime
The tax withheld pursuant to section
should report such repayments on
provides for determination, assessment,
5000C on specified federal procurement
and collection of underpayments at the
line 63c(1). Withholding agents that
payments.
partnership level unless certain elections
increase their withholding in the year
The tax withheld under section 877A on
are made by the partnership. Under these
following the calendar year of
payments of eligible deferred
rules, a partnership (or a pass-through
underwithholding by withholding on future
compensation items or distributions from
partner) may be required to withhold under
payments made to a beneficial owner or
nongrantor trusts to a covered expatriate.
from other property or additional
chapter 3 or chapter 4 when there has
Payments that are reported on Form
been an adjustment under the centralized
contributions of a beneficial owner that are
1042-S under chapter 3 or 4. See
partnership audit regime to an item of
held in custody or otherwise controlled by
Regulations section 1.1474-1(d)(2)(i) for
income or gain allocable to a foreign
the withholding agent should report the
the definition of a chapter 4 reportable
person (or any other person subject to
additional withholding on line 63c(2).
amount (which are amounts required to be
withholding). If the adjustment is to an
Withholding agents should also report on
reported on Form 1042-S for chapter 4
line 63c(2) any other amounts withheld in
amount subject to withholding that is
purposes) and Regulations section
the year following the calendar year in
reportable on Form 1042, the partnership
1.1461-1(c)(2) for amounts subject to
(or pass-through partner) should report
which the related payment was made (to
reporting for chapter 3 purposes.
the withholding on Form 1042 for the year
the extent permitted under an applicable
Certain distributions subject to section
in which it pays the tax required to be
regulation section in chapter 3 or 4). See
1445 withholding tax. Publicly traded
withheld. See section 6241(9).
the instructions for
Lines 63a through
63e,
trusts, real estate investment trusts, and
later.
Reminders
regulated investment companies that are
Lines 65a and 65b. Withholding agents
qualified investment entities (as defined
should use line 65b to report deposits of
Qualified derivatives dealers (QDDs).
under section 897(h)(4)) must withhold
tax withheld in the year following the
A withholding agent that is a Qualified
section 1445 tax on certain distributions
calendar year in which the related
Intermediary (QI) acting as a QDD must
and report such amounts on Form 1042.
payment was made. See
Deposit
assume certain withholding and reporting
For more information, see Regulations
Requirements, later, for when a
responsibilities with respect to payments
section 1.1445-8 and the Instructions for
withholding agent should designate a
made on potential section 871(m)
Form 1042-S.
deposit as being made for the calendar
transactions in its QDD capacity. Form
Publicly traded partnerships (section
year in which the payment was made.
1042 includes Section 4, which a QI that is
1446 withholding tax). For purposes of
a QDD (or has a branch that is a QDD)
Nov 27, 2018
Cat. No. 54843T
reporting on Form 1042, a publicly traded
partnership, corporation, nominee,
is a foreign partnership that is not a
partnership (PTP) must withhold section
government agency, association, or
withholding foreign partnership.
1446 tax on distributions of effectively
tax-exempt foundation, whether domestic
Nonwithholding foreign trust. A
connected income (ECI) to its foreign
or foreign. For purposes of chapter 4, a
nonwithholding foreign trust (NWT) is a
partners. A nominee that receives a
withholding agent includes a participating
foreign trust that is not a withholding
distribution of ECI from a PTP and is
FFI or registered deemed-compliant FFI to
foreign trust.
treated as the withholding agent must use
the extent such FFI is required to withhold
Form 1042 to report the tax withheld. For
tax. See Regulations section 1.1473-1(d)
Qualified derivatives dealer (QDD). A
QDD is a qualified intermediary (QI) that is
this purpose, a nominee is a domestic
for the definition of a withholding agent for
an eligible entity that agrees to assume
person holding an interest in the PTP on
purposes of chapter 4.
behalf of one or more foreign partners. For
the requirements of a QDD and the other
Liability for tax. As a withholding agent,
more information, see Regulations section
requirements in the QI Agreement. Any
you are personally liable for any tax
1.1446-4 and Pub. 515, Withholding of
applicable home office or branch that
required to be withheld as well as interest
seeks to be a QDD must qualify and be
Tax on Nonresident Aliens and Foreign
and any applicable penalties. A
Entities.
approved for QDD status. A QDD must
withholding agent acting through an agent
document itself to a withholding agent with
is liable for any failure of the agent to
Who Must File
a Form W-8IMY indicating that it is acting
deposit any tax required to be withheld
as a QDD for payments with respect to
Every withholding agent or intermediary
and deposited even if the agent is also a
potential section 871(m) transactions and
who receives, controls, has custody of,
withholding agent and is itself separately
underlying securities that it receives in a
disposes of, or pays a withholdable
liable for the failure to comply with the
principal capacity, separately identify the
payment (to which chapter 4 withholding
provisions of chapter 3 or 4.
home office or branch as the recipient on a
applies) or an amount subject to
For purposes of chapter 3, if you fail to
withholding statement (if necessary), and
withholding, must file an annual return for
withhold and the foreign payee fails to
indicate on the form that it will assume
the preceding calendar year on Form 1042
satisfy its U.S. tax liability, then both you
primary chapters 3 and 4 withholding
unless an exception to filing applies. Also,
and the foreign person are liable for tax,
responsibilities and primary Form 1099
any PTP or nominee making a distribution
as well as interest and any applicable
reporting and backup withholding
of ECI under section 1446, or any entity
penalties. The applicable tax will be
responsibilities for certain payments it
required to report a distribution on Form
collected only once. If the foreign person
makes and receives as a QDD. See
1042-S that is subject to withholding under
satisfies its U.S. tax liability, you are not
Regulations section 1.1441-1(e)(6) and
section 1445, must file Form 1042 for the
liable for the tax but remain liable for any
the QI Agreement in Rev. Proc. 2017-15
preceding calendar year.
interest and penalties for failure to
for more information.
You must file Form 1042 if any of the
withhold.
Qualified securities lender. A qualified
following applies.
Intermediary
securities lender (QSL) is a foreign
You are required to file or otherwise file
financial institution that is a bank,
Form(s) 1042-S for purposes of either
An intermediary is a person who acts as a
custodian, broker-dealer, or clearing
chapter 3 or 4 (whether or not any tax was
custodian, broker, nominee, or otherwise
organization subject to regulatory
withheld or was required to be withheld to
as an agent for another person, regardless
supervision in its home jurisdiction and
the extent reporting is required). File Form
of whether that other person is the
that is:
1042 even if you file Form(s) 1042-S
beneficial owner of the amount paid, a
electronically.
1. Regularly engaged in the business
flow-through entity, or another
You file Form(s) 1042-S to report to a
of borrowing securities of U.S.
intermediary.
recipient tax withheld by your withholding
corporations and lending such securities
Qualified intermediary. A QI is an
agent.
to unrelated customers; and
intermediary (or in the case of a QDD, a
You pay gross investment income to
2. Subject to audit by the IRS under
principal) that is a party to a QI Agreement
foreign private foundations that are
section 7602 or, in the case of a QI, an
with the IRS described in Regulations
subject to tax under section 4948(a).
external auditor.
section 1.1441-1(e)(5)(iii). For information
You pay any foreign person specified
on the QI Agreement, see
IRS.gov/
For further information about
federal procurement payments that are
Businesses/Corporations/Qualified-
requirements for QSL status and the
subject to withholding under section
Intermediary-System.
withholding requirements for substitute
5000C.
dividend payments, see Notice 2010-46,
You pay an eligible deferred
Withholding foreign partnership or
available at
IRS.gov/irb/
compensation item to a covered expatriate
withholding foreign trust. A WP or WT
2010-24_IRB#NOT-2010-46. Note that an
or you are a trustee making a distribution
is a foreign partnership or trust that has
entity will no longer be able to claim QSL
from a nongrantor trust to a covered
entered into a withholding agreement with
status as of January 1, 2020. See Notice
expatriate under section 877A.
the IRS described in Regulations section
2018-05, available at
IRS.gov/irb/
You are a qualified intermediary (QI),
1.1441-5(c)(2) and (e)(5) in which it
2018-06_IRB#NOT-2018-05.
withholding foreign partnership (WP),
agrees to assume primary withholding
withholding foreign trust (WT),
responsibility under chapters 3 and 4 for
Foreign financial institution. A foreign
participating foreign financial institution
all payments that are made to it for its
financial institution (FFI) is a foreign entity
(FFI), or reporting Model 1 FFI making a
partners, beneficiaries, or owners.
described in Regulations section
claim for a collective refund under your
1.1471-5(d).
respective agreement with the IRS. See
Nonqualified intermediary. A
Registered deemed-compliant FFI. A
Regulations section 1.1471-1(b)(114) for
nonqualified intermediary (NQI) is any
registered deemed-compliant FFI (as
the definition of a reporting Model 1 FFI.
intermediary that is not a U.S. person and
defined in Regulations section 1.1471-5(f)
that is not a QI.
Withholding Agent
(1)) is an FFI that is deemed to satisfy the
Nonwithholding foreign partnership. A
requirements of section 1471(b) of the
Any person required to withhold tax is a
nonwithholding foreign partnership (NWP)
Code. This includes a reporting Model 1
withholding agent. A withholding agent
FFI or branch of an FFI that is a reporting
may be an individual, trust, estate,
Instructions for Form 1042 (2018)
-2-
Need Assistance?
Model 1 FFI (see Regulations section
discussed later, to deposit the tax withheld
1.1471-1(b)(114) for the definition of
and required to be shown on Form 1042
If you need help completing Form 1042,
reporting Model 1 FFI).
(regardless of whether withholding was
call 267-941-1000 (not a toll-free number)
applied under chapter 3 or 4 or with
Participating FFI. A participating FFI is
from 6:00 a.m. to 11:00 p.m. Eastern time
respect to a specified federal procurement
an FFI that has agreed to satisfy the
or write to:
payment).
obligations of an FFI agreement under
Internal Revenue Service
chapter 4 with respect to all of its
To avoid a penalty, do not mail
International Section
branches of the FFI, other than a branch
your deposits directly to the IRS.
!
Philadelphia, PA 19255-0725
that is a reporting Model 1 FFI or a U.S.
CAUTION
branch. This includes a reporting Model 2
The amount of tax you are required to
Income Tax Withholding
FFI (that has entered into an FFI
withhold determines the frequency of your
agreement with respect to a branch) and a
on Wages, Pensions,
deposits. The following rules explain how
QI branch of a U.S. financial institution
Annuities, and Certain
often deposits must be made.
unless such branch is a reporting Model 1
FFI.
Other Deferred Income
Note. If you are requesting an extension
Nonparticipating FFI. A
of time to file using Form 7004, follow
Use Form 941, Employer’s QUARTERLY
nonparticipating FFI is an FFI that is not a
these rules to see if you must make a
Federal Tax Return, to report income tax
participating FFI, deemed-compliant FFI,
deposit of any balance due or if you can
withheld and social security and Medicare
or exempt beneficial owner.
pay it with Form 7004. See Form 7004 and
taxes on wages paid to a nonresident
its instructions for more information.
alien employee.
Recalcitrant account holder.
Generally, a recalcitrant account holder is
Payments of pensions, annuities, and
1. If at the end of any quarter-monthly
an account holder of a participating or
certain other deferred income paid to a
period the total amount of undeposited
deemed-compliant FFI that failed to
taxes is $2,000 or more, you must deposit
foreign person are subject to withholding
provide the documentation required under
the taxes within 3 business days after the
under section 1441 (rather than section
chapter 4 to determine the account
3405). Report these payments on Forms
end of the quarter-monthly period. (A
holder’s status or to enable the FFI to
1042 and 1042-S.
quarter-monthly period ends on the 7th,
report the account as a U.S. account. See
15th, 22nd, and last day of the month.) A
Use Schedule H (Form 1040),
Regulations section 1.1471-5(g).
business day is any day other than a
Household Employment Taxes, to report
Saturday, Sunday, or legal holiday in the
Passive nonfinancial foreign entity
income tax withheld and social security
District of Columbia.
(NFFE). A passive NFFE is a nonfinancial
and Medicare taxes on wages paid to a
2. If at the end of any month the total
foreign entity other than an excepted
nonresident alien household employee.
amount of undeposited taxes is at least
NFFE, including a WP, WT, QI, or direct
Election To Withhold
$200 but less than $2,000, you must
reporting NFFE. See Regulations sections
deposit the taxes within 15 days after the
1.1471-1(b)(80) and 1.1472-1(b).
Under Section 3406
end of the month. If you make a deposit of
For chapter 4 purposes, an
If you are a participating FFI that has
$2,000 or more during any month except
intermediary must provide its
!
made an election to withhold under
December under rule 1, earlier, carry over
chapter 4 status to a withholding
section 3406 instead of withholding under
any end-of-the-month balance of less than
CAUTION
agent to determine whether withholding
chapter 4, use Form 945 to report tax
$2,000 to the next month. If you make a
applies to the payment. Thus, a chapter 4
withheld on a withholdable payment that is
deposit of $2,000 or more during
status must be provided for a withholdable
also a reportable payment made to any of
December, any end-of-December balance
payment made to a foreign entity.
your recalcitrant account holders that are
of less than $2,000 should be remitted
also U.S. nonexempt recipients subject to
with your Form 1042 by March 15, 2019.
Where and When To File
backup withholding. Also, use Form 945 to
3. If at the end of a calendar year the
report tax withheld on a withholdable
total amount of undeposited taxes is less
Mail Form 1042 by March 15, 2019, to:
payment that is also a reportable payment
than $200, you may either pay the taxes
made to recalcitrant account holders of a
Internal Revenue Service
with your Form 1042 or deposit the entire
participating or registered
P.O. Box 409101
amount by March 15, 2019.
deemed-compliant FFI that is an NQI,
Ogden, UT 84409
NWP, or NWT or a QI that elects to be
Electronic deposit requirement. You
withheld upon under section 1471(b)(3),
must make electronic deposits of all
Use Form 1042-T to transmit paper
and from whom you received a
depository tax liabilities using EFTPS. If
Forms 1042-S.
withholding statement that indicates that
you fail to use EFTPS, you may be subject
such FFI has elected for withholding under
Extension of time to file. If you need
to a 10% penalty. To enroll in or get more
section 3406 to apply instead of
more time to file Form 1042, you may
information about EFTPS, call
submit Form 7004, Application for
withholding under chapter 4 with respect
800-555-4477 or visit EFTPS.gov.
to one or more recalcitrant account
Automatic Extension of Time To File
Depositing on time. For deposits
holders. See Regulations section
Certain Business Income Tax, Information,
made by EFTPS to be on time, you must
1.1471-4(b) and 1.1474-1(d)(4)(i)(B). A
and Other Returns.
submit the deposit by 8 p.m. Eastern time
withholding QI, WP, or WT that is an FFI
Form 7004 does not extend the time for
the day before the date the deposit is due.
should also use Form 945 if it elects to
payment of tax.
If you use a third party to make deposits
withhold under section 3406 on
on your behalf, they may have different
withholdable payments made to certain
Additional Information
cut-off times.
recalcitrant account holders.
For details on the withholding of tax, see
Same-day wire payment option. If you
Pub. 515. You can get Pub. 515 from
Deposit Requirements
fail to initiate a deposit transaction on
IRS.gov.
You are required to use the Electronic
EFTPS by 8 p.m. Eastern time the day
Federal Tax Payment System (EFTPS),
before the date a deposit is due, you still
Instructions for Form 1042 (2018)
-3-
can make your deposit on time by using
treated as having been paid by the REIT
chapter 3 and chapter 4 status codes, and
the Federal Tax Collection Service
and received by each shareholder on
the EIN, QI-EIN, WP-EIN, or WT-EIN.
(FTCS). If you ever need the same-day
December 31, 2018. If the REIT chooses
Note that you must include the
wire payment method, you will need to
to withhold when it pays the dividend in
withholding agent’s chapter 3 and
make arrangements with your financial
January of 2019 (pursuant to the
chapter 4 status codes regardless of
institution ahead of time. Check with your
procedures for adjusting underwithholding
the types of payments being reported
financial institution regarding availability,
in section 1.1461-2(b) or 1.1474-2(b)), it
on Form 1042.
deadlines, and costs. Your financial
should report the liability with respect to
Ensure that the correct EIN is provided.
institution may charge you a fee for
the distribution on its 2018 Form 1042 and
If you are filing Form 1042 as a QI, WP, or
payments made this way. To learn more
should designate the deposit of such tax
WT, enter your QI-EIN, WP-EIN, or WT-
about the information you will need to
as being made for 2018 (if the deposit is
EIN.
provide to your financial institution to make
made by March 15, 2019).
Lines 1 through 60, Record of Federal
a same-day wire payment, visit
Tax Liability, must show the federal tax
Interest and Penalties
EFTPS.gov
to download the Same-Day
liability for payments made during the
Payment Worksheet.
applicable quarter-monthly period. This
If you file Form 1042 late, or fail to pay or
section reports the tax liability, not the tax
deposit the tax when due, you may be
Note. All payments should be made in
deposited by the withholding agent.
liable for penalties and interest unless you
U.S. dollars.
The sum of the monthly totals in Section
can show that the failure to file or pay was
1 (lines 5, 10, 15, 20, 25, 30, 35, 40, 45,
Escrow procedure. See the instructions
due to reasonable cause and not willful
50, 55, and 60) must match the amount of
for
Lines 1 through
60, later, if you are
neglect.
total tax liability reported on lines 64b, 64c,
using the escrow procedure under
You do not have to figure the
and 64d.
Regulations section 1.1471-2(a)(5)(ii) or
amount of any interest or penalties
Do not include amounts reported as
TIP
1.1441-3(d) (and are not depositing the
you may owe. Because figuring
adjustments on line 64a in the Record of
amount of tax withheld with the IRS during
these amounts can be complicated, the
Federal Tax Liability (lines 1 through 60).
the year). Under Regulations section
IRS will do it for you and send you a bill for
You must designate the tax liability as
1.1471-2(a)(5)(ii) or 1.1441-3(d), if a
any amount due.
either a chapter 3 tax liability or a
withholding agent is not able to determine
chapter 4 tax liability. Report the portion of
the portion of a payment subject to
If you include interest or penalties with
the tax liability for the calendar year that is
withholding (for example, because it is
your payment, identify and enter the
a chapter 3 tax liability on line 64b. Report
unable to determine the source of the
amount in the bottom margin of Form
the portion of the tax liability for the
income at the time of the payment), a
1042. Do not include interest or penalties
calendar year that is a chapter 4 tax
withholding agent can follow the escrow
in the balance due on line 69.
liability on line 64c.
procedures by withholding 30% on the
You must complete Section 2,
Interest. Interest is charged on taxes not
entire payment and depositing the amount
Reconciliation of Payments of U.S. Source
paid by the due date, even if an extension
withheld in an escrow account instead of
FDAP Income. Section 2 must be
of time to file is granted. Interest is also
depositing such amounts with the IRS.
completed even if you have not withheld
charged on penalties imposed for failure
With respect to such payment, the
any amounts under chapter 4.
to file, negligence, fraud, and substantial
withholding will be due the earlier of the
understatements of tax from the due date
date a determination is made with respect
Specific Instructions
(including extensions) to the date of
to the amount subject to withholding or 1
payment. Interest is figured at a rate
year from the date the amount is placed in
determined under section 6621.
File only one Form 1042
escrow. To the extent that withholding is
consolidating all Form 1042-S
not required, the escrowed amount must
!
Late filing of Form 1042. The penalty for
recipient information for both
be repaid to the payee. Note that generally
not filing Form 1042 when due (including
CAUTION
chapter 3 and 4 purposes regardless of
an amount placed in escrow during 1
extensions) is 5% of the unpaid tax for
the number of different clients, branches,
calendar year will be reported on a Form
each month or part of a month the return is
divisions, or types of income for which you
1042 the following year. See the
late, up to a maximum of 25% of the
are the withholding agent. However, if you
instructions for
Lines 1 through
60, later, if
unpaid tax.
are acting in more than one capacity (for
you are using the escrow procedures and
example, you are acting as a QI for certain
Late payment of tax. The penalty for not
are not depositing the amount of tax
designated accounts and as an NQI for
paying tax when due is usually one-half of
withheld with the IRS during the year.
1% of the unpaid tax for each month or
other accounts), file a separate Form 1042
Deposits made during subsequent
part of a month the tax is unpaid. The
for each capacity in which you are acting.
year. If you are making a deposit of tax
penalty cannot exceed 25% of the unpaid
withheld in the year following the calendar
tax.
A U.S. branch of a participating FFI that is
year in which the related payment was
required to report amounts under
Other penalties. Penalties may be
made (to the extent permitted under an
chapter 4 must file a separate Form 1042.
imposed for negligence, substantial
applicable regulation section in chapter 3
understatement of tax, and fraud. See
Rounding off to whole dollars. You can
or 4), you must designate the deposit at
sections 6662 and 6663.
round off cents to whole dollars. If you do
the time that it is made as attributable to
round to whole dollars, you must round all
the calendar year in which the payment
Avoid Common Errors
amounts. To round, drop amounts under
was made. In such a case, you should
50 cents and increase amounts from 50 to
report the tax paid on line 65b.
To ensure that your Form 1042 can be
99 cents to the next dollar. For example,
correctly processed, be sure that you do
For example, if a real estate investment
$1.39 becomes $1 and $2.50 becomes
the following.
trust (REIT) declares a dividend to
$3. If you have to add two or more
Carefully read the information provided
shareholders of record in October,
amounts to figure the amount to enter on a
in Pub. 515 and these instructions.
November, or December of 2018, but
line, include cents when adding and only
Complete all required information for
pays the dividend in January of 2019,
round off the total.
the withholding agent including the
under section 857(b)(9) the dividend is
withholding agent’s name, address,
Instructions for Form 1042 (2018)
-4-
See the Form 1042-S instructions for
monthly period. Withholding agents
Employer identification number (EIN).
definitions of U.S. branch of a participating
should report the tax liability for each
You are required to enter your EIN. If you
FFI or registered deemed-compliant FFI
period, rather than the amount of tax
are filing Form 1042 as a QI, WP, or WT,
treated as a U.S. person, territory financial
actually deposited with the IRS.
enter your QI-EIN, WP-EIN, or WT-EIN.
institution (FI) treated as a U.S. person,
If you are a QSL that is also a QI, enter
Withholding and depositing of tax
and flow-through entity.
your QI-EIN. Otherwise, enter the EIN you
is not required under both
!
Withholding agents are to use
have been assigned.
chapters 3 and 4 for the same
specified withholding agent status
CAUTION
!
If you are for chapter 4 purposes a
payment. In the case of a payment for
codes on Forms 1042-S for
participating FFI or other financial
which withholding is required under
CAUTION
payments made by foreign branches of
institution that has been issued a global
chapters 3 and 4, a withholding agent may
U.S. financial institutions. See the 2018
intermediary identification number (GIIN)
credit the withholding applied under
Instructions for Form 1042-S. However,
for chapter 4 reporting purposes, you must
chapter 4 against its liability for any tax
the U.S. financial institution should
nevertheless get an EIN to file Form 1042
due under section 1441, 1442, or 1443.
continue to use its own withholding agent
(or use your existing EIN, such as a
For a payment subject to withholding
chapter 3 and chapter 4 status codes
QI-EIN in the case of a QI if filing in such
under section 1445 or 1446, withholding
(code 01) for purposes of completing
capacity).
under chapter 4 does not apply.
Form 1042 if there are any payments
If you are a participating FFI or other
made by the U.S. home office reflected on
Foreign partners of U.S. partnerships
financial institution filing this form on
the form. Otherwise, use chapters 3 and 4
and foreign beneficiaries of U.S.
behalf of a branch other than your U.S.
status codes 34 and 50 (U.S. Withholding
trusts. To the extent that a domestic
branch, you cannot use the EIN of the
Agent-Foreign branch of FI) unless a more
partnership has not distributed a foreign
U.S. branch to file this form and you must
specific status code applies (for example,
partner's distributive share of income
get a separate EIN to file this form on
a foreign branch may use chapter 3 status
subject to withholding under section 1441,
behalf of all your branches other than your
code 12 (Qualified Intermediary) or
1442, or 1443, or under chapter 4, it
U.S. branch.
chapter 4 status code 07 (Registered
should not include any tax liability on lines
If you do not have an EIN, you can
Deemed-Compliant FFI-Reporting Model
1 through 60 for tax relating to the
apply for one online at IRS.gov/EIN. You
1 FFI), as applicable, based on the
partner's distributive share in the year the
can apply for an EIN by telephone at
chapter 3 or 4 status of the foreign
partnership earns the income. For
800-829-4933. You also can file Form
branch).
distributive shares not actually distributed,
SS-4, Application for Employer
the partnership must include any tax
Identification Number, by fax or mail. File
A QI that is a QDD should use the
liability on lines 1 through 60 of the Form
amended Forms 1042-S when you receive
withholding agent chapter 3 status code
1042 for the following year. Include the tax
your EIN.
for a QI (code 12) for purposes of filing its
liability on the line that represents the
Form 1042, regardless of the types of
To get a QI-EIN, WP-EIN, or WT-EIN,
earlier of the following dates.
payments it made for the calendar year.
submit Form SS-4 with your application for
The date on which the Schedule K-1
However, a QI that is a QDD should use
that status. Do not send an application for
(Form 1065) is sent or otherwise furnished
the withholding agent chapter 3 status
a QI-EIN, WP-EIN, or WT-EIN to the
to the foreign partner.
code for a QDD (code 35) for purposes of
addresses listed in the Instructions for
The due date for furnishing
reporting on Form 1042-S a payment that
Form SS-4. Send the application along
Schedule K-1 (Form 1065) to the partner.
it made in its capacity as a QDD.
with Form SS-4 to:
Include such tax liability for the period
that includes the date the tax was required
Section 1. Record of
Internal Revenue Service
to be withheld. See Regulations section
Federal Tax Liability
LB&I: International: QI Group 1031
1.1441-5(b)(2)(i)(A).
290 Broadway, 12th floor
A domestic trust should report on lines
New York, NY 10007-1867 USA
Lines 1 through 60. Except as otherwise
1 through 60 in the same manner as a
provided in these instructions, include the
U.S. partnership to the extent that it is
tax liability for the period in which the
Address. Include the suite, room, or
required to distribute, but has not actually
income was paid or distributed regardless
other unit number after the street address.
distributed, a foreign beneficiary's share of
of whether the liability is under chapter 3
If your post office does not deliver mail to
distributable net income subject to
or chapter 4 and regardless of whether the
the street address and you have a P.O.
withholding under section 1441, 1442, or
liability was satisfied through withholding
box, show the box number instead of the
1443, or under chapter 4, before the date
or was paid by the withholding agent (see
street address.
(without extensions) on which the income
the instructions for box 11 of Form
is required to be reported on Form
Chapter 3 and 4 status codes of with-
1042-S). Do not enter any negative
1042-S. See Regulations section
holding agent. Enter your chapter 3 and
amounts on these lines. If you are required
1.1441-5(b)(2)(ii).
chapter 4 status codes from the list of
to report a reduction to liability on line 59
“Type of Recipient, Withholding Agent,
(because you made a repayment under
Note. For rules that apply for WPs and
Payer, or Intermediary Codes” on Form
the reimbursement or set-off procedure),
WTs, see Rev. Proc. 2017-21, available at
1042-S. You must enter both a chapter 3
and this results in a negative amount of tax
IRS.gov/irb/2017-06_IRB#RP-2017-21.
and a chapter 4 withholding agent status
liability for the period corresponding to
code regardless of the type of payment
line 59, you should instead report any
Example. In 2018, USP, a U.S.
being made. See pages 2 and 3 of these
negative amount for the next earlier
partnership, has foreign partners that are
Form 1042 instructions for definitions of
period(s) so that you are not reporting any
individuals and for which it has obtained
intermediary, qualified intermediary (QI),
negative amounts on lines 1 through 60.
valid documentation to establish their
withholding foreign partnership (WP),
See
Adjustment for
Overwithholding, later.
foreign status. The withholding tax under
withholding foreign trust (WT),
section 1441 relating to the distributive
Lines 1 through 60 must show the
nonqualified intermediary (NQI), qualified
shares of the foreign partners was $120.
withholding agent’s record of
!
securities lender (QSL), participating FFI,
USP made no distributions in 2018. On
federal tax liability for payments
and registered deemed-compliant FFI.
CAUTION
the 2018 Form 1042, USP did not enter
made during the applicable quarter-
Instructions for Form 1042 (2018)
-5-

Download Instructions for IRS Form 1042 - Annual Withholding Tax Return for U.S. Source Income of Foreign Persons 2018

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