Non-US Citizen (Foreign Nationals investors) With US Income Subject to Withholding Do Not Ignore Form 1042-S
1042-S – What Is It and Who Needs to Complete It?
This form has to be completed by a Withholding Agent – (i.e. bank or broker/Financial Institution that pays passive income and must withhold tax on the disbursals, but the overall scope is broader than that.
– “You are a withholding agent if you are the U.S. or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. A withholding agent may be an individual, corporation, partnership, trust, association, or any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies. You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. authenticate the foreign identify documents for ITIN applicants, so you don’t need to send your original passports to the IRS.
How Does This Affect Me (Foreign National Investor/Taxpayer)?
If you are a Non-US citizen who receives passive income from a US source, there is a strong likelihood there is tax withheld from payment disbursal. You are likely than in receipt of form 1042-S, which must be added to your US tax return. Potentially your withholding may be too large and you may be eligible for a refund as this income may be non-taxable due to your treaty benefits. Or the effective tax rate is lower than the default amount of withholding. With correctly filed form 1042-S attached to your US non-resident tax return, potential refunds will not be delayed.
Foreign Students, Teachers, or Trainees Under F, J, M, or Q Visas:
If you fit into this subset, you are considered engaged in a trade or business and thus required to file a US tax return. Many individuals with these visas are eligible for employment in the U.S. and eligible for SS# as well. If not eligible, you may request an ITIN from the IRS with form W-7 (contact your CPA/attorney/tax preparer/CAA for assistance). Generally, anyone who meets the substantial presence test (183 days presence in US test) must file form 1040, but there are exceptions for these visa types. If you meet the exception, you should file U.S. non-resident tax return form.
1040NR (Majority of Foreign Nationals with no US residency will be filing 1040NR to claim 1042S/1099/Firpta tax refund).
Form 1042-S should be reviewed to ensure that it contains accurate information and attached to your Form 1040NR ( Foreign Nationals/Nonresident Alien Tax Return)
This is especially important if you receive a scholarship or fellowship, as this income may be partially or completely exempt from taxation under the terms of a tax treaty.
Failure to properly attach form 1042-S (copy B) to your tax return may impact your ability to receive this refund in a timely manner. Contact the withholding agent for amended form 1042-S if it contains inaccurate information.
Form 1042S (Foreign Nationals/Non-US Citizens from any country irrespective of the residence even if US tax treaty does not apply to your country should ask your withholding agents this Form 1042S if withholding tax deducted/ even if Form W8 BEN was completed with valid ITIN)
Withholding agents must provide five copies of Form 1042-S.
Copy A should go to the IRS; Copies B, C, and D to the recipient of the income; and copy E should be retained by the withholding agent.
All information, including the name of the taxpayer, must match exactly on all copies of Form 1042-S.
If you need assistance with ITIN/Form W7 Application or CAA services/US 1040NR/1040 US tax filing for refund claim of excess 1042S withholding.
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