What Is Form 1042 and When Is It Filed for Foreign Persons’ U.S. Income?

Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons) is filed by any U.S. person or entity that withheld tax on payments to nonresident aliens, foreign partnerships, or foreign corporations during the year. It is the withholding agent’s return, not the foreign recipient’s return. The foreign recipient receives Form 1042-S, which shows what was withheld (IRS: About Form 1042).

• Form 1042: filed by the U.S. withholding agent (employer, broker, bank, property manager)
• Form 1042-S: sent to the foreign recipient showing income and tax withheld
• Form 1042-T: transmittal form submitted with paper 1042-S copies

When expats encounter Form 1042:

• Expat business owners who pay foreign contractors or employees from a U.S. entity must file Form 1042 as the withholding agent
• U.S. LLCs with foreign members must withhold on distributions to foreign partners and file the form
• Property managers who collect rent on behalf of a foreign landlord and withhold FIRPTA/NRA tax file Form 1042
• After renouncing citizenship, you do not file Form 1042, but you receive Form 1042-S from your U.S. payers (brokers, pension plans)

Key withholding rates reported on Form 1042:

• 30% default on FDAP income (dividends, interest, rents, royalties) to NRAs
• Treaty-reduced rates (15%, 10%, 0%) if the recipient filed Form W-8BEN
• Graduated rates on effectively connected income (reported separately)

Penalties for failing to file Form 1042 or withhold correctly: $50 per Form 1042-S not filed (up to $500,000/year), plus liability for the tax that should have been withheld.

For more on NRA withholding, see our Taxation of Nonresident Aliens guide.