Forms 1042 and 1042-S: reporting payments to foreign persons

Any US business that pays certain income to foreign persons is a withholding agent, with its own forms and deadlines. Many small businesses either over-report foreign payments or miss the ones that matter. This guide sets out what goes on Forms 1042-S and 1042, and what does not.

By Hamza Fida, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

Form 1042-S reports US-source income such as dividends, interest, royalties, rents or US-performed services paid to a foreign person, and any tax withheld. The payer gives a copy to each recipient and files it with the IRS by March 15, with Form 1042, the annual summary of tax withheld. Payments for services performed entirely outside the US are foreign-source and generally not reported.

At a glance

Form 1042-S
One per recipient and type of income
Form 1042
Annual summary of tax withheld
Due
March 15, to recipients and the IRS
Covers
US-source income paid to foreign persons
Not usually
Services performed entirely outside the US
E-file
Required with 10 or more information returns
Forms 1042 and 1042-S: reporting payments to foreign personsSteps: 1. Collect a Form W-8 before paying; 2. Withhold the right amount; 3. Deposit the tax; 4. Issue Forms 1042-S; 5. File Forms 1042-S and 1042.THE PROCESS AT A GLANCEForms 1042 and 1042-S: reporting payments toforeign persons1Collect a FormW-8 before payingW-8BEN, W-8BEN-E orW-8ECI as appropriate2Withhold theright amount30%, a treaty rate, ornothing where anexemption applies3Deposit the taxElectronically, on aschedule based on theamount withheld4Issue Forms1042-STo each recipient byMarch 155File Forms 1042-Sand 1042With the IRS by March15; Form 1042 can beextendedChecked against official sourcesTax BakersForms 1042 and 1042-S: reporting payments to foreign personsSteps: 1. Collect a Form W-8 before paying; 2. Withhold the right amount; 3. Deposit the tax; 4. Issue Forms 1042-S; 5. File Forms 1042-S and 1042.THE PROCESS AT A GLANCEForms 1042 and 1042-S: reportingpayments to foreign persons1Collect a Form W-8 before payingW-8BEN, W-8BEN-E or W-8ECI as appropriate2Withhold the right amount30%, a treaty rate, or nothing where anexemption applies3Deposit the taxElectronically, on a schedule based on theamount withheld4Issue Forms 1042-STo each recipient by March 155File Forms 1042-S and 1042With the IRS by March 15; Form 1042 can beextendedChecked against official sourcesTax Bakers
The process at a glance: 1. Collect a Form W-8 before paying; 2. Withhold the right amount; 3. Deposit the tax; 4. Issue Forms 1042-S; 5. File Forms 1042-S and 1042.

What is reported on Form 1042-S?

Payment to a foreign personReported on Form 1042-S?
Dividends from a US corporationYes
Royalties for use of property in the USYes
Rents from US propertyYes
Interest, including exempt portfolio interestGenerally yes, with an exemption code where exempt
Fees for independent services performed in the USYes
Fees for services performed entirely outside the USNo: foreign-source income
Wages to a non-resident employee for US workUsually on Form W-2, or Form 1042-S if exempt by treaty

See the 30% withholding explained.

What are the income and exemption codes?

Each Form 1042-S shows an income code for the type of payment, such as dividends or royalties, and either the rate withheld or an exemption code explaining why less than 30% was withheld, such as a treaty or effectively connected income. It also shows the recipient's chapter 3 and chapter 4 status, taken from their Form W-8. See Form W-8BEN-E instructions.

How does the process work?

  1. Collect a Form W-8 before paying

    W-8BEN, W-8BEN-E or W-8ECI as appropriate.

  2. Withhold the right amount

    30%, a treaty rate, or nothing where an exemption applies.

  3. Deposit the tax

    Electronically, on a schedule based on the amount withheld.

  4. Issue Forms 1042-S

    To each recipient by March 15.

  5. File Forms 1042-S and 1042

    With the IRS by March 15; Form 1042 can be extended.

What is Form 1042?

The withholding agent's annual return. It reports the total tax withheld on payments to foreign persons, reconciles it with deposits, and shows any balance due. It is filed even when nothing was withheld, if Forms 1042-S are filed.

How are 1042 deposits made?

Tax withheld on payments to foreign persons is deposited electronically, on a schedule that depends on how much has accumulated: small amounts can be deposited monthly, larger amounts more often. Form 1042 then reconciles the year's liability with the deposits, period by period.

Must you file electronically?

Withholding agents with 10 or more information returns in total for the year must file Forms 1042-S electronically. Financial institutions must e-file regardless of number.

Does a foreign-owned LLC file these?

Only if it pays reportable income to foreign persons. Paying a contractor abroad for work done abroad usually needs no Form 1042-S. Distributions from a disregarded LLC to its foreign owner are not dividends and are reported on Form 5472, not 1042-S. See paying foreign contractors and Form 5472.

How does the recipient use Form 1042-S?

As proof of the income and of tax withheld. A foreign individual who was over-withheld, or who must file because of other US income, attaches it to Form 1040-NR to claim the credit or a refund. A foreign company uses it with Form 1120-F. Recipients should check that their name, country and treaty claim are shown correctly.

What records should the payer keep?

The Forms W-8 that support each rate or exemption, payment records, deposit confirmations, and copies of the Forms 1042-S and 1042 filed. Keep them for as long as the IRS can review the returns, since a missing or invalid W-8 can make the payer liable for the full 30%.

What are the penalties?

A withholding agent that fails to withhold is liable for the tax itself, plus penalties and interest. Late or incorrect Forms 1042-S carry information return penalties per form, and late deposits carry failure-to-deposit penalties.

Paying foreign persons?

We work out which payments are reportable, withhold correctly, and file your Forms 1042-S and 1042 on time.

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Questions people ask

What is Form 1042-S?

The form that reports US-source income paid to a foreign person and any tax withheld on it.

When are Forms 1042 and 1042-S due?

March 15, both to recipients and the IRS. Form 1042 can be extended.

Do I file Form 1042-S for a contractor working abroad?

Usually not. Pay for services performed entirely outside the US is foreign-source.

What is the difference between Form 1042 and 1042-S?

Form 1042-S reports each recipient's payments; Form 1042 is the payer's annual summary of tax withheld.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IRS: About Form 1042-S
  2. IRS: About Form 1042
  3. IRS Publication 515: Withholding of Tax on Nonresident Aliens and Foreign Entities

Rules and fees change. If you are reading this long after October 1, 2026, confirm the figures with the source before you rely on them.

Foreign-owned and non-resident companiesThe 30% withholding on US-source income explainedPayroll and contractorsPaying foreign contractors from a US companyFederal tax formsForm W-8BEN-E: how to fill it in for a foreign company

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This guide is general information. It is not tax or legal advice for your situation.