Amounts Subject to Reporting on Form 1042-S
Amounts subject to reporting on Form 1042-S (PDF) are amounts paid to foreign persons (including persons presumed to be foreign) that are subject to withholding, even if no amount is deducted and withheld from the payment because of a tax treaty or IRC exception to taxation or if any amount withheld was repaid to the payee. Amounts subject to withholding are amounts from sources within the United States that constitute
- Fixed or determinable, annual or periodical (FDAP) income;
- Certain gains from the disposal of timber, coal, or domestic iron ore with a retained economic interest; and
- Gains relating to contingent payments received from the sale or exchange of patents, copyrights, and similar intangible property.
Amounts subject to reporting include, but are not limited to, the following U.S. source items.
- Corporate distributions. The entire amount of a corporate distribution (whether actual or deemed) must be reported, irrespective of any estimate of the portion of the distribution that represents a taxable dividend. Any distribution, however, that is treated as gain from the redemption of stock is not an amount subject to reporting. Please note that beginning September 14, 2010, a dividend equivalent is treated as a U.S. source dividend.
- Interest. This includes the portion of a notional principal contract payment that is characterized as interest. However, see certain provisions relating to interest at Amounts That Are Not Subject to Reporting on Form 1042-S.
- Compensation for dependent and independent personal services performed in the United States for which the beneficial owner is claiming tax treaty benefits.
- Pension distributions and other deferred income.
- Most gambling winnings. However, proceeds from a wager placed in blackjack, baccarat, craps, roulette, or big-6 wheel are not amounts subject to reporting.
- Cancellation of indebtedness. Income from the cancellation of indebtedness must be reported unless the withholding agent is unrelated to the debtor and does not have knowledge of the facts that give rise to the payment.
- Effectively connected income (ECI). ECI includes amounts that are (or are presumed to be) effectively connected with the conduct of a trade or business in the United States even if no withholding certificate is required, as, for example, with income on notional principal contracts. Note that bank deposit interest, which generally is not subject to Form 1042-S reporting, is subject to Form 1042-S reporting if it is effectively connected income.
- Notional principal contract income. Income from notional principal contracts that the payor knows, or must presume, is effectively connected with the conduct of a U.S. trade or business is subject to reporting. The amount to be reported is the amount of cash paid on the contract during the calendar year. Any amount of interest determined under the provisions of Regulations section 1.446-3(g)(4) (dealing with interest in the case of a significant non-periodic payment) is reportable as interest and not as notional principal contract income.
- Students, trainees, teachers, and researchers. Amounts paid to foreign students, trainees, teachers, or researchers as scholarship or fellowship income, and compensation for personal services (whether or not exempt from tax under an income tax treaty), must be reported. However, amounts that are exempt from tax under IRC section 117 are not subject to reporting. For information on how to report wages paid to aliens refer to Aliens Employed in the U.S.
- Amounts paid to foreign governments, foreign controlled banks of issue, and international organizations. These amounts are subject to reporting even if they are exempt under IRC sections 892 or 895.
- Foreign targeted registered obligations - Interest paid on registered obligations targeted to foreign markets paid to a foreign person other than a financial institution or a member of a clearing organization is an amount subject to reporting.
- Original issue discount (OID) from the redemption of an OID obligation. The amount subject to reporting is the amount of OID actually includible in the gross income of the foreign beneficial owner of the income, if known. Otherwise, the withholding agent should report the entire amount of OID as if the recipient held the instrument from the date of original issuance. To determine the amount of OID reportable, a withholding agent may rely on Publication 1212, List of Original Issue Discount Instruments.
- Certain dispositions of U.S. Real Property Interests by publicly traded trusts and real estate investment trusts (REITs), as described in U.S. Real Property Interests in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
- Certain dispositions described under Publicly Traded Partnerships (IRC section 1446 Withholding Tax) in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
U.S. source interest on deposits in excess of $10 annually paid to a Canadian nonresident alien individual.
For more details on the types of income that are subject to withholding, refer to Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities for more information.
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.