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Changes made to Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding)

Mike Habib, EA

The IRS has made some changes to the electronic/magnetic media filing procedures for 2007 Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, and also released the 2008 version of the form. Form 1042-S is filed by withholding agents to report amounts paid to foreign persons (including persons presumed to be foreign) that are subject to U.S. withholding, even if: (1) no amount is deducted and withheld from the payment because of a treaty or Internal Revenue Code exception to taxation, or (2) the amount withheld was repaid to the payee. Amounts subject to reporting include, but are not limited to, the following U.S.-source items: (i) compensation for independent or dependent personal services performed in the U.S., (ii) compensation for personal services performed in the U.S. by students, teachers, and researchers, and (iii) amounts paid to foreign students, trainees, teachers, or researchers as scholarship or fellowship income, except that amounts exempt under IRC §117 are not subject to reporting. An item that is required to be reported on Forms W-2 or 1099 should not be reported on Form 1042-S.

2007 Electronic/magnetic filing procedures. The changes to the electronic/magnetic media filing procedures for the 2007 tax year are in Ann. 2008-6, 2008-5 IRB 378 . The changes include some revisions to Canadian Province codes. The following Canadian Province codes should be used on 2007 returns: AB (Alberta); BC (British Columbia); MB (Manitoba); NB (New Brunswick); NL (Newfoundland & Labrador); NS (Nova Scotia); NT (Northwest Territories); NU (Nunavut); ON (Ontario); PE (Prince Edward Island); QC (Quebec); SK (Saskatchewan); and YT (Yukon Territory).

Ann. 2008-6, 2008-5 IRB 378, supersedes Ann. 2007-110, 2007-48 IRB 1082, and incorporates additional changes to IRS Publication 1187, 12/2006, Specifications for Filing Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, Electronically or Magnetically. The IRS advises filers to review both IRS Publication 1187, 12/2006 , and the changes in Ann. 2008-6, 2008-5 IRB 378 , before filing their 2007 returns.

2008 Form 1042-S. The IRS has released the 2008 version of Form 1042-S and its instructions. The deadline for filing the return is March 16, 2009 (whether filed on paper or electronically). Boxes have been added to Form 1042-S to show the amount withheld by other withholding agents (Box 8), and the total amount of tax withheld (Box 9). Filers report the recipient’s foreign tax identification number, if any, in Box 15. Filers may use Box 22 to report the account number that they assigned to the recipient, but they are not required to complete this box.

The form instructions note that beginning with tax year 2008 (processing year 2009), the IRS will no longer accept tape cartridges. Form 1042-S must be filed either on paper or electronically. Taxpayers reporting 250 or more Forms 1042-S will be required to file the forms electronically.

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Mike Habib, EA
MyIRSTaxRelief.com