As we alerted readers in an earlier blog post, the IRS has published the highly anticipated draft of an all-new Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, for use in reporting 2014 income payments (reporting you will do in 2015). A copy of the draft form is available to view on the IRS website.
The many changes in this Form 1042-S are designed to accommodate reporting of information relating to both Internal Revenue Code Chapter 3 withholding at source on payments to non-U.S. individuals and entities, and the new IRC Chapter 4 FATCA information and withholding. Changes are not only on the face of the form – new boxes, new data to be tracked and reported – but there are also changes in the Codes used on the form. The all-new Instructions for this form have not yet been issued but are expected soon, in draft form.
Among the changes:
• Separate boxes for chapter 3 reporting (the exemption code and tax rate) and chapter 4 reporting (exemption code and tax rate).
• New use of boxes for “Withholding allowance”, “Net income”, “Tax assumed by withholding agent”, “Amount repaid to recipient” and a checkbox to indicate “tax not deposited under escrow procedure.”
• The withholding agent, and intermediary or flow-through entity if there is one, will be identified by codes for chapter 3 status and chapter 4 status (separate boxes).
• The recipient also will be identified by codes for chapter 3 status and chapter 4 status (separate boxes).
• New Exemption Codes – You will use one set of exemption codes for withholding under IRC chapter 3, and a separate set of exemption codes for withholding under IRC chapter 4. There are 12 chapter 3 exemption codes, and 9 chapter 4 exemption codes.
• New “Status Codes” – The “Type of Recipient” Codes currently in use on the 1042-S will be replaced with a set of 32 status codes for IRC chapter 3 reporting purposes, and a set of 42 status codes for IRC chapter 4 reporting purposes.
There are also new Income Codes:
• 22, Interest paid on deposit with a foreign branch of a domestic corporation or partnership
• 21, Gross income – Capital gain dividend
• 20, Gross income – Other
• 44, Transportation and freight income (Apparently intended to indicate both ordinary freight income, and transportation income for which the payee can claim withholding exemption due to already being subject to excise tax)
• 50, Income previously reported under escrow procedure
• 51, Other income. (Note the new number for this designation. Currently “other income” is reported using code 50.)
The IRS is accepting comments about this new form. You can submit comments through the IRS website. Or, you can send your comments in an email to firstname.lastname@example.org and in the “Subject” line of your email message use “Form 1042-S for 2014” so the IRS can properly direct your comments.
Thomson Reuters offers a wide-range of educational webcasts on tax information reporting issues including FATCA, 1042-S reporting, W-8 procedures, and payments to foreign individuals and vendors. Visit our webcast page to learn more.
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