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Did You Make Payments to Non U.S. Persons in 2023? IRS Delays Form 1042 E-Filing Rule

March 06, 2024

Attention businesses…did you make payments to foreign payees during 2023? You may be required to file Form 1042. The e-filing mandate that was set to take effect this year has since been delayed…Here’s what you should know

What is Form 1042?

Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, needs to be completed when tax is withheld, or payment of US sourced income is reported to non-US recipients. The form reports the gross amount of income paid to all recipients, as well as the liability for withholding on any of these payments. Forms 1042-S act as a separate filing that reports the aggregate 1042 information on a per recipient basis.

Who is required to file?

Filing Form 1042 is required of every person, business, or institution that receives, controls, has custody of, disposes, or pays a withholdable payment to non-US persons.

What is the deadline to file?

Form 1042 must be filed by March 15th of the year following when the income was paid. A six-month extension of time to file is available.

February 2023 Final Regulations

While a mandate for electronically filing Forms 1042-S has been in effect for several years, in February 2023, the IRS issued final regulations requiring Forms 1042 to be electronically filed for tax years ending on or after December 31, 2023. These mandatory e-filing regulations were to apply to three groups:

  • Businesses filing 10 or more returns, including Forms 1042-S and 1099 (previously more than 250)
  • Partnerships with more than 100 partners
  • Withholding agents that are financial institutions

What’s new with the filing requirements?

In response to concerns about the limited number of e-file business providers, additional time needed to upgrade systems and other authentication challenges facing foreign persons, the IRS has delayed the e-filing requirements as of February 28, 2024.

Withholding agents are not required to e-file form 1042 in 2024 but instead can paper file by March 15, 2024. Foreign withholding agents (including qualified intermediaries and withholding foreign partnerships) are not required to e-file in either 2024 or 2025.

Be sure to send your paper file in, or extend, by March 15! You can incur penalties for failing to file. Reach out to us for further guidance.

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