Specific Instructions

File only one Form 1042 consolidating all Form 1042-S recipient information for both chapter 3 and 4 purposes regardless of the number of different clients, branches, divisions, or types of income for which you are the withholding agent. However, if you are acting in more than one capacity (for example, you are acting as a QI for certain designated accounts and as an NQI for other accounts), file a separate Form 1042 for each capacity in which you are acting.

A U.S. branch of a participating FFI that is required to report amounts under chapter 4 must file a separate Form 1042.

Rounding off to whole dollars.   You can round off cents to whole dollars. If you do round to whole dollars, you must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3. If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding and only round off the total.

Employer identification number (EIN).   You are generally required to enter your EIN. However, if you are filing Form 1042 as a QI, WP, or WT, enter your QI-EIN, WP-EIN, or WT-EIN.

  If you are a QSL that is also a QI, enter your QI-EIN. Otherwise enter the EIN you have been assigned.

  If you are for chapter 4 purposes a participating FFI or other financial institution that has been issued a global intermediary identification number (GIIN) for chapter 4 reporting purposes, you must nevertheless obtain an EIN to file Form 1042 (or use your existing EIN such as a QI-EIN in the case of a QI).

  If you are a participating FFI or other financial institution filing this form on behalf of a branch other than your U.S. branch, you cannot use the EIN of the U.S. branch to file this form and you must obtain a separate EIN to file this form on behalf of all your branches other than your U.S. branch.

  If you do not have an EIN, you can apply for one online at www.irs.gov. Click on "Apply for an EIN Online." You can apply for an EIN by telephone at 1-800-829-4933. You also can file Form SS-4, Application for Employer Identification Number, by fax or mail. File amended Forms 1042-S when you receive your EIN.

  To get a QI-EIN, WP-EIN, or WT-EIN, submit Form SS-4 with your application for that status. Do not send an application for a QI-EIN, WP-EIN, or WT-EIN to the addresses listed in the Instructions for Form SS-4. Send the application along with Form SS-4 to:

Internal Revenue Service  
LB & I: International: QI Group 1031 
290 Broadway, 12th floor 
New York, NY 10007-1867 USA

Address.   Include the suite, room, or other unit number after the street address. If your post office does not deliver mail to the street address and you have a P.O. box, show the box number instead of the street address.

Chapter 3 and 4 status codes of withholding agent.   See “Form 1042-S, Explanation of Codes,” for the withholding agent status codes applicable to these boxes. See pages 1 and 2 of these instructions for definitions of codes for intermediary, qualified intermediary (QI), withholding foreign partnership (WP), withholding foreign trust (WT), and nonqualified intermediary (NQI), qualified securities lender (QSL), participating FFI, and registered deemed-compliant FFI. See the Form 1042-S instructions for definitions of U.S. branch of a participating FFI or registered deemed-compliant FFI treated as a U.S. person, territory financial institution (FI) treated as a U.S. person, and flow-through entity.

Section 1

Lines 1 through 60.   Except as otherwise provided in these instructions, include the tax liability for the period in which the income was paid or distributed regardless of whether the liability is under chapter 3 or chapter 4 and regardless of whether the liability was satisfied through withholding or was assumed by the withholding agent (see instructions for box 9 of Form 1042-S). Do not enter any negative amounts on these lines.

  The liabilities reported should also take into account reductions resulting from application of the reimbursement and set-off procedures. See instructions for line 71.

Withholding and depositing of tax is not required under both chapters 3 and 4 for the same payment. In the case of a payment for which withholding is required under chapters 3 and 4, a withholding agent may credit the withholding applied under chapter 4 against its liability for any tax due under sections 1441, 1442, or 1443. For a payment subject to withholding under section 1445 or 1446, withholding under chapter 4 does not apply.

Foreign partners of U.S. partnerships.   To the extent that a domestic partnership has not distributed a foreign partner's distributive share of income subject to withholding under section 1441, 1442, 1443, or under chapter 4, it should not include any tax liability on lines 1 through 60 for tax relating to the partner's distributive share in the year the partnership earns the income. For distributive shares not actually distributed, the partnership must include any tax liability on lines 1 through 60 of the Form 1042 for the following year. Include the tax liability on the line that represents the earlier of the following dates.
  • The date on which the Schedule K-1 (Form 1065) is sent or otherwise furnished to the foreign partner.

  • The due date for furnishing Schedule K-1 (Form 1065) to the partner.

  Include such tax liability for the period that includes the date the tax was required to be withheld.

Example.

In 2014, USP, a U.S. partnership, has foreign partners that are individuals and for which it has obtained valid documentation to establish their foreign status. The withholding tax under section 1441 relating to the distributive shares of the foreign partners was $120. USP made no distributions in 2014. On the 2014 Form 1042, USP did not enter any amount as tax liability on lines 1 through 60 because it did not distribute any amounts.

USP made a distribution on February 10, 2015, that related to the 2014 distributive shares of the foreign partners. USP withheld $100 at the time of the distribution. USP sent the 2014 Schedules K-1 (Form 1065) to its partners on April 2, 2015.

On the 2015 Form 1042, USP entered $100 on line 7. This is the tax liability for the period (February 8 through 15) during which it made a distribution. USP entered $20 on line 16. This is the tax liability for the period (April 1 through 7) during which it furnished the Schedules K-1 (Form 1065) to the partners.

  
Use Form 8804 to report withholding tax liability on the partnership's income effectively connected with a U.S. trade or business.

Corporate distributions.   Do not include on lines 1 through 60 any tax liability caused by adjustments of underwithheld tax on corporate distributions made in calendar year 2014 if the following apply.
  • The distributing corporation made a reasonable estimate of accumulated and current earnings and profits under Regulations section 1.1441-3(c)(2)(ii)(A) or 1.1474-6(c)(2)(ii); and

  • The distributing corporation or intermediary immediately paid over the underwithheld tax by March 16, 2015.

  Instead, include these payments of underwithheld tax on line 64a.

Excise tax on specified federal procurement payments.   Include on lines 1 through 60 any withholding obligation under section 5000C with respect to specified federal procurement payments. Report the amount on the line that corresponds with the date the deposit was due.

Specified federal procurement payment.

A specified federal procurement payment means any payment made pursuant to a contract with the United States Government entered into after January 1, 2011, for the provision of goods, if such goods are manufactured or produced in any country which is not a party to an international procurement agreement with the United States, or the provision of services, if such services are provided in any country which is not a party to an international procurement agreement with the United States.

Qualified intermediaries with no primary chapter 3 and 4 withholding responsibility.   If you are a QI that did not assume primary withholding responsibility, under both chapters 3 and 4, enter the total amount of the tax liability of U.S. withholding agent(s) under both chapters 3 and 4 on line 59. Report all other amounts on the line that corresponds with the date the liability was incurred.

Note.

Reporting on line 59 as described above also applies to any other entity that reports on Form 1042 to the extent such entity claims a credit on line 67 for amounts withheld by another withholding agent (whether under chapter 3 or 4).

Overwithholding.   If you repaid the recipient for an amount overwithheld by reducing the amount withheld on a later payment, report the reduced amount on these lines. If you used the reimbursement procedure for overwithheld amounts for either chapter 3 or 4 purposes, see Adjustment for Overwithholding, later.

Line 61.   Enter the number of Forms 1042-S filed on paper and electronically.

If you are a financial institution or you file 250 or more Forms 1042-S, you must submit them electronically.

Total Gross Amounts Reported

Lines 62a through 62c.   Enter the amounts reported on all Forms 1042-S for the calendar year (regardless of whether the form was filed electronically or on paper) and for all Forms 1000, Ownership Certificate.

  
Be sure to reconcile amounts on Form 1042 with amounts on Forms 1042-S (including Forms 1042-S filed electronically), to avoid unnecessary correspondence with the IRS.

Line 62a.   The amount on line 62a should equal: The sum of all amounts shown on Form 1042-S, box 2 that are payments of U.S. source FDAP income, less the sum of all amounts that are U.S. source substitute payments reported on line 62b.

Line 62b.   The amount on:
  • Line 62b(1) should equal the sum of all amounts shown on Form 1042-S, box 2 that are U.S. source substitute dividend payments, and

  • The amount shown on line 62b(2) should equal all amounts shown on Form 1042-S, box 2 that are U.S. source substitute payments other than substitute dividend payments.

  See Regulations section 1.1441-2(b)(4) regarding substitute payments.

Line 62c.   The amount on line 62c should equal the sum of all amounts shown on Forms 1042-S, box 2, and all amounts shown as gross interest paid on Forms 1000.

Line 62d.    Enter gross amounts reportable on Forms 1000 and Forms 1042-S if different from the total gross amounts actually reported on Forms 1000 and Forms 1042-S (as shown on line 62c).

Total Tax Reported as Withheld or Assumed

Lines 63a through 63d.   Except as noted directly below, enter for each line the amounts reported for all Forms 1042-S (regardless of whether the form was filed electronically or on paper) and for all Forms 1000. The amounts reported on line 63c should be the amounts repaid to account holders under the reimbursement procedures described below for line 71. See Form 1042-S, box 11 for reporting these corresponding amounts. The amounts reported on line 63d should be the amounts assumed by the withholding agent (paid by the withholding agent rather than through withholding). See Form 1042-S, box 9 for the corresponding amounts.

Line 63e.   The amount on line 63e should equal the sum of lines 63a through 63d. The amount on line 63e should also equal:
  • The sum of all amounts shown on Forms 1042-S, box 10, less

  • The sum of of all amounts shown on Forms 1042-S, box 11, plus

  • The tax assumed on Forms 1000.

  If it does not, attach a statement to Form 1042 explaining the difference.

Total Net Tax Liability

Line 64a.   Include on line 64a any tax liability resulting from adjustments of underwithheld tax on corporate distributions made in calendar year 2014 if:
  • The distributing corporation made a reasonable estimate of accumulated and current earnings and profits under Regulations sections 1.1441-3(c)(2)(ii)(A) or 1.1474-6(c)(2)(ii), and

  • The distributing corporation or intermediary paid over the underwithheld tax by March 16, 2015.

  If you are a regulated investment company (RIC), real estate investment trust (REIT), or personal holding company (PHC) that paid a dividend subject to section 852(b)(7), section 857(b)(9), or section 563(b) (relating to certain dividends declared in the preceding October, November, or December), enter your additional tax liability on those dividends declared in 2014 but paid no later than March 16, 2015, less any additional tax liability on those dividends declared in 2013 but paid no later than March 17, 2014. Show any negative amount in brackets. Attach a statement showing your calculation.

Lines 64b and 64c.   The amount on lines 64b and 64c must equal the sum of the monthly totals as listed on the Record of Federal Tax Liability (lines 1-60). You must designate the amounts as withheld either under chapter 3 on line 64b or under chapter 4 on line 64c. The amounts shown on lines 64b and 64c should not include any amounts shown on lines 64a and 64d. Do not make any other adjustments to this line.

Line 64d.   Enter on line 64d the total amount of specified federal procurement payments multiplied by 2% (.02).

Line 64e.   The amount on line 64e should equal the sum of lines 64a through 64d.

Note.

The amount of line 64e should equal the amount reported on line 63e plus any amounts reported on line 64a.

Reporting of Taxes Paid and Overpayment or Balance Due

Line 65.   Enter the total tax deposits you made for the year (including amounts paid with an extension of time to file).

Line 66.   Enter any overpayment reported on the 2013 Form 1042 that you are applying as a credit on the 2014 Form 1042. See line 71.

Line 67.   You are permitted to take a credit for amounts withheld by other withholding agents that relate to the total net tax liability reported on lines 64b and 64c. For example, you are a QI and the amount you entered on line 64b includes amounts withheld by a U.S. withholding agent under chapter 3 with respect to payments made to you as an intermediary on behalf of your account holders. You may take a credit on line 67 for the amounts that were withheld by the U.S. withholding agent. The amount on line 67 should equal the sum of all Forms 1042-S, box 8, that you file for the year.

Note.

All withholding agents (including QIs, WPs, WTs, NQIs, NWPs, and NWTs) must verify entries on lines 67a and 67b by attaching supporting Form(s) 1042-S, issued to you, to verify the credit amounts claimed for withholding by other withholding agents. Failure to do so will result in the denial of the refund or credit being claimed. If you are a PTP or a nominee withholding under section 1446, the tax paid for a payee may only be claimed as a credit by the payee.

QSL claiming a credit forward.   If you are a QSL or other withholding agent claiming a credit forward of prior withholding on substitute dividends on line 67b as determined under Notice 2010-46, you should attach Form(s) 1042-S issued to you to support such credits. If a credit is claimed with respect to any U.S. source substitute dividends paid to you from a withholding agent that has not issued a Form 1042-S to you for such payments, attach a supporting statement to Form 1042 indicating the following to support your credit.

  
  • The withholding agent's name, address, and EIN (if known).

  • The amount of U.S. source substitute dividends received from the withholding agent.

  • The amount of credit forward you included on line 66 in connection with these substitute dividends.

Lines 70a and 70b.   Enter on line 70a any overpayment attributable to overwithholding under chapters 3 and 4. Enter on line 70b any overpayment attributable to excise tax on specified federal procurement payments.

Line 71.   You may claim an overpayment (the sum of lines 70a and 70b) as a refund or a credit. Check the applicable box on line 71 to show which one you are claiming. If you claim a credit, it can reduce your required deposits of withheld tax for 2015.

Adjustment For Overwithholding

What to do if you overwithheld tax depends on when you discover the overwithholding.

Overwithholding discovered by March 15 of the following calendar year.   If you discover that you overwithheld tax by March 15 of the following calendar year, you may use any undeposited amount of tax to make any necessary adjustments between you and the recipient of the income. Repay the recipient and reduce the amount of your total deposit. Report the reduced tax liability on lines 1 through 60 for the period(s) for which you repaid the overwithheld tax.

  If the undeposited amount is not enough to make any adjustments, or if you discover the overwithholding after the entire amount of tax has been deposited, you can use either the reimbursement or the set-off procedure to adjust the overwithholding.

  
If March 15 is a Saturday, Sunday, or legal holiday, the next business day is the final date for these actions.

Reimbursement procedure.

Under the reimbursement procedure, you repay the beneficial owner or payee the amount overwithheld. You use your own funds for this repayment. You must make the repayment by the earlier of:

  • The date you actually file Form 1042-S for the calendar year in which the amount was overwithheld, or

  • The due date for filing Form 1042-S for the calendar year (generally March 15 of the year after the calendar year in which the amount is overwithheld). For example, if you overwithhold tax in 2014, you must repay the beneficial owner by March 16, 2015.

You must keep a receipt showing the date and amount of the repayment and provide a copy of the receipt to the beneficial owner.

You may reimburse yourself by reducing any subsequent deposits you make before the end of the year after the calendar year in which the amount was overwithheld. The reduction cannot be more than the amount you actually repaid.

Report the reduced tax liability on lines 1 through 60 for the period for which you reimbursed the overwithheld tax. Report the total tax withheld as your total deposits. Indicate on line 71 whether you want a refund or a credit.

Set-off procedure.

Under the set-off procedure, you repay the beneficial owner or payee the amount overwithheld by reducing the amount you would have been required to withhold on later payments you make to that person but only if made before the earlier of:

  • The date you actually file Form 1042-S for the calendar year in which the amount was overwithheld, or

  • The due date for filing Form 1042-S for the calendar year (generally March 15 of the year after the calendar year in which the amount is overwithheld).

Report the reduced tax liability on lines 1 through 60 for the period you reduced your required withholding.

Overwithholding discovered at a later date.   If you discover after March 15 of the following calendar year that you overwithheld tax for the prior year, do not adjust the amount of tax liability reported on Form 1042 or on any deposit or payment for that prior year. Do not repay the beneficial owner or payee the amount overwithheld unless you are a QI, WP, WT, participating FFI, or reporting Model 1 FFI making a claim for a collective refund under your respective agreement with the IRS. See Regulations section 1.1471-1(b)(107) for the definition of a reporting Model 1 FFI.

  In this situation, the recipient will have to file a U.S. income tax return (Form 1040NR, Form 1040NR-EZ, or Form 1120-F) or, if a tax return has already been filed, a claim for refund (Form 1040X or amended Form 1120-F) to recover the amount overwithheld.

Section 2. Reconciliation of U.S. Source FDAP Income

For 2014, this section is optional. In future years, a withholding agent will be required to complete this section.

This section is used by the withholding agent to reconcile the amount of U.S. source FDAP income reportable under chapter 4 and paid by the withholding agent during the calendar year with the total amount of U.S. source FDAP income reported on all Forms 1042-S filed by the withholding agent for the calendar year. This section also allows reporting of the amounts of U.S. source FDAP income for which chapter 4 withholding is required and reporting of the amounts for which withholding is not required according to the exemption from chapter 4 withholding applicable to each such amount.

Note.

The amounts of U.S. source FDAP income reportable for chapter 4 are:

  • Payments of U.S. source FDAP income for which withholding under chapter 4 was applied to the payment, plus

  • Payments of U.S. source FDAP income for which withholding under chapter 4 was not required but that are subject to reporting for chapter 3 purposes on Forms 1042-S.

Line 1.   Enter the amounts of U.S. source FDAP income required to be withheld under chapter 4 including amounts withheld but not deposited under an escrow procedure.

Line 2.   Enter amounts of U.S. source FDAP income not required to be withheld under chapter 4 on lines 2a through 2e according to the exception to withholding that applied to each payment reportable on Form 1042-S. The amount on line 2f should equal the sum of lines 2a through 2e.

Line 3.   The amount on line 3 should equal:
  • The sum of line 1, plus

  • The sum of line 2.

Line 4.   Enter the sum of all amounts shown on Form 1042-S, box 2 that are payments of U.S. source FDAP income. The amount on line 4 should equal the sum of line 62a through 62b(2).

Line 5.   The amount on line 5 should equal:
  • The sum of line 3, less

  • The sum of line 4.

  If the amount on line 5 is other than 0, provide an explanation for the variance on line 6.

Line 6.   If applicable, provide an explanation for the variance reported on line 5. If additional space is needed, attach a sheet to Form 1042 explaining the difference.

Section 3

Check the box if you are a dealer or trader in notional principal contracts or other derivative contracts that reference in whole or in part one or more U.S. securities and that made payments on such contracts during the calendar year.

Third Party Designee

If you want to allow any individual, corporation, firm, organization, or partnership to discuss your 2014 Form 1042 with the IRS, check the “Yes” box in the Third Party Designee section of the return. Also, enter the designee's name, phone number, and any five digits the designee chooses as his or her personal identification number (PIN). The authorization applies only to the tax form upon which it appears.

If you check the “Yes” box, you are authorizing the IRS to call the designee to answer any questions relating to the information reported on your tax return. You also are authorizing the designee to:

  • Exchange information concerning your tax return with the IRS, and

  • Request and receive written tax return information relating to your tax return, including copies of specific notices, correspondence, and account transcripts.

    You are not authorizing the designee to receive any refund check, bind you to anything (including additional tax liability), or otherwise represent you before the IRS. If you want to expand the designee’s authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.

The authorization automatically expires one year from the due date (without any extensions) for filing your 2014 Form 1042. If you or your designee desires to terminate the authorization, a written statement conveying your wish to revoke the authorization should be submitted to the IRS service center where the return was processed.

Amended Return

If you have to make changes to your Form 1042 after you submit it, file an amended Form 1042. Use a Form 1042 for the year you are amending. Check the “Amended Return” box at the top of the form. You must complete the entire form, including all filing information for the calendar year, and sign the return. Attach a statement explaining why you are filing an amended return (for example, you are filing because the tax liability for May was incorrectly reported due to a mathematical error).

If you also are amending Form(s) 1042-S, see Amended Return in the Form 1042-S instructions.

Do not amend Form 1042 to recover taxes overwithheld in the prior year. For more information, see Adjustment for Overwithholding, earlier.


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