Master Guide to Form 1042-S Compliance

A decade ago, many U.S. businesses might have said they rarely paid foreign vendors, so the details of the tax requirements for IRS form W-8 and annual reporting to the IRS on Form 1042-S were not an important part of the payments process. But those days are behind us; in an increasingly global economy, most businesses find themselves paying foreign vendors – and needing to comply with the associated regulations.

If a vendor has a U.S. address, instructs you to pay a U.S. address or U.S. bank, or even has a U.S. tax identification number, that doesn’t mean 30% withholding is not required or that 1042-S reporting is not needed if you are paying income subject to these requirements. Unless specifically exempted, payments made in the course of trade or business are reportable to the IRS, and to the payee, on an information return. Payers must be able to identify their payees as U.S. or non-U.S. individuals from initial contact with them, as well as determine whether payments made to them throughout the course of the year will be reportable.

The 2016 Master Guide to Form 1042-S provides detailed instruction on updates and proposed changes affecting this year’s reporting, gives an in-depth look at current rules (NFFEs, FATCA, ECI, PATH Act, and more), and gives you step-by-step instructions for filing . The book includes a full glossary, a compliance check-list and year-end checklist, as well an appendix.

The book covers critical updates for reporting year 2016, including:

  • New Form W-8BEN-E

The IRS has issued a new Form W-8BEN-E. The new form includes a new FATCA entity type in line 5, “account that is not a financial account,” additional space for a Global Intermediary Identification Number (“GIIN”), and reverses the positions of Sections XXIX and XXX.. The most notable change, however, is in the treaty claim section of the form. The form now requires payees making income tax treaty claims under a treaty that includes a Limitation on Benefits (“LOB”) Article to indicate why the payee meets the LOB requirements.

  • Significant changes to Form 1042-S: new layout and elements

– Treaty claims and limitation on benefits articles
– Special reporting for payments to a hybrid entity claiming treaty benefits
– List of foreign country codes is no longer part of the instructions
– Special requirements are mandated for financial institutions in 2016 to report account numbers

  • Form 1042-S Incorrect TIN penalties
  • 1042-S Withholding Credit – Denial of Credit for Withholding Reported on 2014 Forms
  • 1042-S State refunds
  • Draft of New Form W-8EXP
  • ITINs – Changes in expiration rules, a new ‘treaty-use-only’ ITIN identifier