Tax & Accounting Blog

Penalties for Failure to Comply with NRA Withholding and 1042-S Information Reporting: Part 2 – A Penalty for Late Deposit

1042-S, International Reporting & Compliance, ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting, Withholding Management February 1, 2012

The IRS prescribes when deposits of NRA withholding are required in IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. A payer who fails to make a required deposit of withheld taxes within the time prescribed is liable for a penalty on the underpayment (i.e., the excess of the required deposit over any actual timely deposit for the period). The penalty rate is based on the number of days that the deposit is late:

1 to 5 days late — 2 percent;
6 to 15 days late — 5 percent; or
16 or more days late — 10 percent

If the late deposit is not made within 10 days after the IRS issues the first notice demanding payment, the penalty is 15 percent. A withholding agent may be able to abate the penalty by showing that the failure to timely deposit was for reasonable cause and not because of willful neglect.

The tax liabilities and deposits must be listed on Form 1042 quarterly by month. The date for tax liabilities is the date paid (or deemed paid under constructive receipt principles). The date for deposits is the date the deposit is made.