Tax & Accounting Blog

Information Reporting on Form 1042-S, A New Challenge for Accounts Payable – Part 2: Payments to Beneficial Owners Recipient Code

1099, ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting, Withholding Management July 27, 2012

In order to report income and taxes properly, payers must generally maintain a record in the name of the income recipient even if payment is made to a different payee.

Generally, the recipient named on the Form 1042-S is the individual (Code 01) or entity such as a corporation (Code 02) that is the beneficial owner of the income, typically designated on a withholding certificate (W-8BEN, W-8ECI, W-8EXP or 8233). The beneficial owner of the income is the individual or entity required to record the gross income on their U.S. tax return, were they to have a U.S. tax return obligation. If income is paid to an entity that is disregarded for U.S. tax purposes (such as a single-owner disregarded entity), the owner of the disregarded entity is the recipient even though the contract or purchase order may be in the name of the disregarded entity. (A form W-8BEN or W-9 must be in the name of the single owner.)

Sometimes the income is owned by more than one beneficial owner but is directed to be paid to only one of the owners. For example, an entertainment group that is not a legal entity might designate one individual in the group to receive the payment. When there is more than one beneficial owner of the income, as in this case, the income must be reported in the name of each beneficial owner based on an allocation provided by the group or, absent such an allocation, equally. The determination of whether an income payment is subject to withholding or an exemption from withholding must be based on the attributes and documentation of the individual beneficial owner(s) of the income.