For the latest information about developments related to Form 1042 and its instructions, such as legislation enacted after they were published, go to www.irs.gov/form1042.
Foreign Account Tax Compliance Act (FATCA or Chapter 4 of the Code). The Form 1042 was modified in 2014 from the Form 1042 used for prior years, primarily for withholding agents to report payments and amounts withheld under chapter 4 of the Code (chapter 4) in addition to those payments and amounts required to be reported under chapter 3 of the Code (chapter 3). Form 1042 adds lines for reporting of the tax liability under chapters 3 and 4, includes separate chapters 3 and 4 status codes for withholding agents, and provides for a reconciliation of U.S. source fixed or determinable annual or periodical (FDAP) income payments that are withholdable payments for chapter 4 purposes. Withholding agents that make nonfinancial payments generally will not be affected by the new requirements under chapter 4. See these instructions for a description of any further changes to Form 1042. For the requirement of a withholding agent to file a Form 1042 for chapter 4 purposes and the requirements for the form, see Regulations section 1.1474-1(d).
Chapter 3 and 4 status codes. As of 2015, the chapter 3 and 4 status codes of withholding agents are required regardless of the types of payments reported on this form.
Escrow procedure. See instructions for lines 1 through 60 if you are using the escrow procedure under Regulations section 1.1471-2(a)(5)(ii) or 1.1441-3(d) (and are not depositing the amount of tax withheld with the IRS during the year).
Adjustment for overwithholding. Withholding agents using the reimbursement procedure should now report the reduced tax liability for the period in which repayment to the beneficial owner is made rather than the period in which the withholding agent reimburses itself. The instructions for using the reimbursement and set-off procedures have also been modified to clarify reporting under these procedures. See instructions for Adjustment for Overwithholding later.
Reconciliation of U.S. source FDAP income. As of 2015, Section 2 of the form is no longer optional. It must be completed by all withholding agents. See instructions for Section 2, Reconciliation of U.S. Source FDAP Income, later.
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