The IRS has released a draft version of the 2023 instructions for Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding).

For those unaware, withholding agents file Form 1042-S to report amounts paid to foreign persons (e.g., salaries, interest, dividends, premiums, pensions, scholarships, and grants) from sources within the U.S. during the preceding calendar year that are subject to withholding. Copy A of Form 1042-S must be filed with the IRS even if:

  • No tax is withheld because the income was exempt from tax under a treaty or under the Internal Revenue Code, including the exemption for income effectively connected with conducting a trade or business in the United States.
  • The amount withheld was repaid to the recipient. This means that Form 1042-S should not be filed if the amount is required to be reported on Form W-2 or 1099.

The instructions have been updated to reflect requirements under IRS Codes 1446(a) and 1446(f) that apply beginning January 1, 2023. These requirements apply to brokers effecting transfers of interests in publicly traded partnerships (PTPs). In addition, two new income codes (57 and 58) and a new chapter 3 status code (39) have been added for new requirements, beginning in 2023.

Regardless if Form 1042-S is filed on paper or electronically, the form is due by March 15 of the following year. Additionally, Form 1042-S must be furnished to recipients of the income by March 15.

Note: Filers of 250 or more Forms 1042-S must file the forms electronically. However, the Taxpayer First Act of 2019 authorizes the Treasury and IRS to issue regulations that reduce the 250-return electronic filing requirement. The IRS has stated that until final regulations are issued, the threshold will remain at 250 returns.

Source: Thomson Reuters

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