Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons

2015

Instructions for Form 1042

Department of the Treasury
Internal Revenue Service

Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
Section references are to the Internal Revenue
Code unless otherwise noted.

See instructions for Adjustment for
Overwithholding later.

Future Developments

Reconciliation of U.S. source FDAP in­
come. As of 2015, Section 2 of the form
is no longer optional. It must be completed
by all withholding agents. See instructions
for Section 2, Reconciliation of U.S.
Source FDAP Income, later.

For the latest information about
developments related to Form 1042 and
its instructions, such as legislation
enacted after they were published, go to
www.irs.gov/form1042.

What’s New
Foreign Account Tax Compliance Act
(FATCA or Chapter 4 of the Code). The
Form 1042 was modified in 2014 from the
Form 1042 used for prior years, primarily
for withholding agents to report payments
and amounts withheld under chapter 4 of
the Code (chapter 4) in addition to those
payments and amounts required to be
reported under chapter 3 of the Code
(chapter 3). Form 1042 adds lines for
reporting of the tax liability under chapters
3 and 4, includes separate chapters 3 and
4 status codes for withholding agents, and
provides for a reconciliation of U.S. source
fixed or determinable annual or periodical
(FDAP) income payments that are
withholdable payments for chapter 4
purposes. Withholding agents that make
nonfinancial payments generally will not
be affected by the new requirements
under chapter 4. See these instructions for
a description of any further changes to
Form 1042. For the requirement of a
withholding agent to file a Form 1042 for
chapter 4 purposes and the requirements
for the form, see Regulations section
1.1474-1(d).
Chapter 3 and 4 status codes. As of
2015, the chapter 3 and 4 status codes of
withholding agents are required
regardless of the types of payments
reported on this form.
Escrow procedure. See instructions for
lines 1 through 60 if you are using the
escrow procedure under Regulations
section 1.1471-2(a)(5)(ii) or 1.1441-3(d)
(and are not depositing the amount of tax
withheld with the IRS during the year).
Adjustment for overwithholding.
Withholding agents using the
reimbursement procedure should now
report the reduced tax liability for the
period in which repayment to the
beneficial owner is made rather than the
period in which the withholding agent
reimburses itself. The instructions for
using the reimbursement and set-off
procedures have also been modified to
clarify reporting under these procedures.
Nov 02, 2015

Publication 515. Publication 515 (cited
in these instructions) was updated for
2014 and 2015 to include the withholding
and reporting provisions of chapter 4.

General Instructions
Purpose of Form

Use Form 1042 to report the following.
The tax withheld under chapter 3
(excluding withholding under section 1445
and under section 1446 only as indicated
below) on certain income of foreign
persons, including nonresident aliens,
foreign partnerships, foreign corporations,
foreign estates, and foreign trusts.
The tax withheld under chapter 4 on
withholdable payments. For the
withholding requirements of chapter 4, see
Regulations sections 1.1471-2(a),
1.1471-4(b), and 1.1472-1(a).
The tax withheld pursuant to section
5000C on specified federal procurement
payments.
Payments that are reported on Form
1042-S under chapter 3 or 4. See
Regulations section 1.1474-1(d)(2)(i) for
the definition of a chapter 4 reportable
amount (which are amounts required to be
reported on Form 1042-S for chapter 4
purposes) and Regulations section
1.1461-1(c)(2) for amounts subject to
reporting for chapter 3 purposes.
Publicly traded partnerships (section
1446 withholding tax). For purposes of
reporting on Form 1042, a publicly traded
partnership (PTP) must withhold section
1446 tax on distributions of effectively
connected income (ECI) to its foreign
partners. A nominee that receives a
distribution of ECI from a PTP and is
treated as the withholding agent must use
Form 1042 to report the tax withheld. For
this purpose, a nominee is a domestic
person holding an interest in the PTP on
behalf of one or more foreign partners. For
more information, see Regulations section
1.1446-4 and Pub. 515, Withholding of
Tax on Nonresident Aliens and Foreign
Entities.

Cat. No. 54843T

Who Must File

Every withholding agent or intermediary
who receives, controls, has custody of,
disposes of, or pays a withholdable
payment, including any fixed or
determinable annual or periodical income,
must file an annual return for the
preceding calendar year on Form 1042
unless an exception to filing applies. Also,
any PTP or nominee making a distribution
of ECI under section 1446 must file Form
1042 for the preceding calendar year. See
the Form 1042-S instructions for the
definition of a withholdable payment.
You must file Form 1042 if any of the
following applies.
You are required to file or otherwise file
Form(s) 1042-S for purposes of either
chapter 3 or 4 (whether or not any tax was
withheld or was required to be withheld to
the extent reporting is required). File Form
1042 even if you file Form(s) 1042-S
electronically.
You file Form(s) 1042-S to report to a
recipient tax withheld by your withholding
agent.
You pay gross investment income to
foreign private foundations that are
subject to tax under section 4948(a).
You pay any foreign person specified
federal procurement payments that are
subject to withholding under section
5000C.
You are a qualified intermediary (QI),
withholding foreign partnership (WP),
withholding foreign trust (WT),
participating foreign financial institution
(FFI), or reporting Model 1 FFI making a
claim for a collective refund under your
respective agreement with the IRS. See
Regulations section 1.1471-1(b)(114) for
the definition of a reporting Model 1 FFI.

Withholding Agent

Any person required to withhold tax is a
withholding agent. A withholding agent
may be an individual, trust, estate,
partnership, corporation, nominee,
government agency, association, or
tax-exempt foundation, whether domestic
or foreign. For purposes of chapter 4, a
withholding agent includes a participating
FFI or registered deemed-compliant FFI to
the extent such FFI is required to withhold
tax. See Regulations section 1.1473-1(d)
for the definition of a withholding agent for
purposes of chapter 4.
Liability for tax. As a withholding agent,
you are personally liable for any tax
required to be withheld as well as interest

and any applicable penalties. A
withholding agent acting through an agent
is liable for any failure of the agent to
deposit any tax required to be withheld
and deposited even if the agent is also a
withholding agent and is itself separately
liable for the failure to comply with the
provisions of chapter 3 or 4.
For purposes of chapter 3, if you fail to
withhold and the foreign payee fails to
satisfy its U.S. tax liability, then both you
and the foreign person are liable for tax,
as well as interest and any applicable
penalties. The applicable tax will be
collected only once. If the foreign person
satisfies its U.S. tax liability, you are not
liable for the tax but remain liable for any
interest and penalties for failure to
withhold.

1. Regularly engaged in the business
of borrowing securities of U.S.
corporations and lending such securities
to unrelated customers; and
2. Subject to audit by the IRS under
section 7602 or, in the case of a QI, an
external auditor.

Intermediary

Registered Deemed­Compliant FFI. A
registered deemed-compliant FFI is a
foreign financial institution (as defined in
Regulations section 1.1471-5(f)) that is
deemed to satisfy the requirements of
section 1471(b) of the Code. This includes
a reporting Model 1 FFI (see Regulations
section 1.1471-1(b)(114) for the definition
of reporting Model 1 FFI).

An intermediary is a person who acts as a
custodian, broker, nominee, or otherwise
as an agent for another person, regardless
of whether that other person is the
beneficial owner of the amount paid, a
flow-through entity, or another
intermediary.

Qualified intermediary. A QI is an
intermediary that is a party to a QI
agreement with the IRS described in
Regulations section 1.1441-1(e)(5)(iii). For
information on the QI agreement, see
http://www.irs.gov/Businesses/
Corporations/Qualified-Intermediaries(QI).
Withholding foreign partnership or
withholding foreign trust. A WP or WT
is a foreign partnership or trust that has
entered into a withholding agreement with
the IRS described in Regulations section
1.1441-5(c)(2) and (e)(5) in which it
agrees to assume primary withholding
responsibility under chapters 3 and 4 for
all payments that are made to it for its
partners, beneficiaries, or owners.
Nonqualified intermediary. A
nonqualified intermediary (NQI) is any
intermediary that is not a U.S. person and
that is not a QI.
Nonwithholding foreign partnership. A
nonwithholding foreign partnership (NWP)
is a foreign partnership that is not a
withholding foreign partnership.
Nonwithholding foreign trust. A
nonwithholding foreign trust (NWT) is a
foreign trust that is not a withholding
foreign trust.
Qualified securities lender. A qualified
securities lender (QSL) is a foreign
financial institution that is a bank,
custodian, broker-dealer, or clearing
organization subject to regulatory
supervision in its home jurisdiction and
that is:

For further information about
requirements for QSL status and the
withholding requirements for substitute
dividend payments, see Notice 2010-46,
2010-24 I.R.B. 757, available at
www.irs.gov/irb/2010-24_IRB/ar09.html.
Foreign Financial Institution. A foreign
financial institution (FFI) is a foreign entity
that is a financial institution, see
Regulations section 1.1471-5(e)(1) for the
definition of financial institution.

Participating FFI. A participating FFI is
a foreign financial institution that has
agreed to satisfy the obligations of an FFI
agreement under chapter 4. This includes
an FFI described in a Model 2
inter-governmental agreement (IGA) that
has agreed to comply with the
requirements of an FFI agreement (i.e.,
reporting Model 2 FFI).
Nonparticipating FFI. A
nonparticipating FFI is a foreign financial
institution that is not a participating FFI,
deemed-compliant FFI, or exempt
beneficial owner.
Recalcitrant account holder.
Generally, a recalcitrant account holder is
an account holder of a participating or
deemed-compliant FFI that failed to
provide the documentation required under
chapter 4 to determine the account
holder’s status or to enable the FFI to
report the account as a U.S. account. See
Regulations section 1.1471-5(g).
Passive non­financial foreign entity
(NFFE). A passive NFFE is a nonfinancial
foreign entity other than an excepted
NFFE, including a WP, WT, QI, or direct
reporting NFFE. See Regulations sections
1.1471-1(b)(80) and 1.1472-1(b).
For chapter 4 purposes an
intermediary must provide its
CAUTION
chapter 4 status to a withholding
agent to determine whether withholding
applies to the payment. Thus, a chapter 4
status must be provided for a withholdable
payment made to a foreign entity.

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­2­

Where and When To File

Mail Form 1042 by March 15, 2016, to:
Ogden Service Center
P.O. Box 409101
Ogden, UT 84409
Use Form 1042-T to transmit paper
Forms 1042-S.
Extension of time to file. If you need
more time to file Form 1042, you may
submit Form 7004, Application for
Automatic Extension of Time To File
Certain Business Income Tax, Information,
and Other Returns.
Form 7004 does not extend the time for
payment of tax.

Additional Information

For details on the withholding of tax, see
Pub. 515. You can get Pub. 515 by
downloading it from IRS.gov. Click on
“Forms and Pubs” and then on
“Publication Number.”

Need Assistance?

If you need help completing Form 1042,
call 267-941-1000 (not a toll-free number)
from 6:00 a.m. to 11:00 p.m. Eastern time
or write to:
Internal Revenue Service
International Section
Philadelphia, PA 19255-0725

Income Tax Withholding
on Wages, Pensions,
Annuities, and Certain
Other Deferred Income

Use Form 941, Employer’s QUARTERLY
Federal Tax Return, to report income tax
withheld and social security and Medicare
taxes on wages paid to a nonresident
alien employee.
Use Form 945, Annual Return of
Withheld Federal Income Tax, to report
income tax withheld under section 3405
from pensions, annuities, and certain
other deferred income paid to a
nonresident alien individual. However, if
the recipient has elected under section
3405(a)(2) or (b)(2) not to have
withholding under section 3405, these
payments are subject to withholding under
section 1441 and the tax withheld must be
reported using Forms 1042 and 1042-S.
Use Schedule H (Form 1040),
Household Employment Taxes, to report
income tax withheld and social security
and Medicare taxes on wages paid to a
nonresident alien household employee.

Instructions for Form 1042 (2015)

Election To Withhold
Under Section 3406

Use Form 945 to report tax withheld on a
withholdable payment that is a reportable
payment on recalcitrant account holders of
a participating or registered
deemed-compliant FFI that has elected on
its withholding statement for withholding
under section 3406 to apply instead of
withholding under chapter 4 with respect
to one or more recalcitrant account
holders. See Regulations section
1.1471-4(b). A withholding QI, WP, or WT
that is an FFI should also use Form 945 if
it elects to withhold under section 3406 on
certain recalcitrant account holders.

Deposit Requirements

You are required to use the Electronic
Federal Tax Payment System (EFTPS),
discussed later, to deposit the tax withheld
and required to be shown on Form 1042
(regardless of whether withholding was
applied under chapter 3 or 4 or with
respect to a specified federal procurement
payment).

!

To avoid a penalty, do not mail
your deposits directly to the IRS.

CAUTION

The amount of tax you are required to
withhold determines the frequency of your
deposits. The following rules explain how
often deposits must be made.
Note. If you are requesting an extension
of time to file using Form 7004, follow
these rules to see if you must make a
deposit of any balance due or if you can
pay it with Form 7004. See Form 7004 and
its instructions for more information.
1. If at the end of any quarter-monthly
period the total amount of undeposited
taxes is $2,000 or more, you must deposit
the taxes within 3 business days after the
end of the quarter-monthly period. (A
quarter-monthly period ends on the 7th,
15th, 22nd, and last day of the month.) A
business day is any day other than a
Saturday, Sunday, or legal holiday in the
District of Columbia.
2. If at the end of any month the total
amount of undeposited taxes is at least
$200 but less than $2,000, you must
deposit the taxes within 15 days after the
end of the month. If you make a deposit of
$2,000 or more during any month except
December under rule 1, earlier, carry over
any end-of-the-month balance of less than
$2,000 to the next month. If you make a
deposit of $2,000 or more during
December, any end-of-December balance
of less than $2,000 should be remitted
with your Form 1042 by March 15, 2016.
3. If at the end of a calendar year the
total amount of undeposited taxes is less
than $200, you may either pay the taxes
Instructions for Form 1042 (2015)

with your Form 1042 or deposit the entire
amount by March 15, 2016.
Electronic deposit requirement. You
must make electronic deposits of all
depository tax liabilities using EFTPS. If
you fail to use EFTPS, you may be subject
to a 10% penalty. To enroll in or get more
information about EFTPS, call
1-800-555-4477 or visit
www.eftps.gov/eftps. Information is also
available at www.irs.gov/e-pay.
Depositing on time. For deposits
made by EFTPS to be on time, you must
initiate the deposit by 8 p.m. Eastern time
the day before the date the deposit is due.
If you use a third party to make deposits
on your behalf, they may have different
cut-off times.
Same­day wire payment option. If you
fail to initiate a deposit transaction on
EFTPS by 8 p.m. Eastern time the day
before the date a deposit is due, you still
can make your deposit on time by using
the Federal Tax Application. If you ever
need the same-day wire payment method,
you will need to make arrangements with
your financial institution ahead of time.
Check with your financial institution
regarding availability, deadlines, and
costs. Your financial institution may
charge you a fee for payments made this
way. To learn more about the information
you will need to provide to your financial
institution to make a same-day wire
payment, visit www.eftps.gov to download
the Same-Day Payment Worksheet.
Note. All payments should be made in
U.S. dollars.
Escrow Procedure. See instructions for
lines 1 through 60, later, if you are using
the escrow procedure under Regulations
section 1.1471-2(a)(5)(ii) or 1.1441-3(d)
(and are not depositing the amount of tax
withheld with the IRS during the year).

Interest and Penalties

If you file Form 1042 late, or fail to pay or
deposit the tax when due, you may be
liable for penalties and interest unless you
can show that the failure to file or pay was
due to reasonable cause and not willful
neglect.
You do not have to figure the
amount of any interest or
penalties you may owe. Because
figuring these amounts can be
complicated, the IRS will do it for you and
send you a bill for any amount due.

TIP

If you include interest or penalties with
your payment, identify and enter the
amount in the bottom margin of Form
1042. Do not include interest or penalties
in the balance due on line 69.

­3­

Interest. Interest is charged on taxes not
paid by the due date, even if an extension
of time to file is granted. Interest is also
charged on penalties imposed for failure
to file, negligence, fraud, and substantial
understatements of tax from the due date
(including extensions) to the date of
payment. Interest is figured at a rate
determined under section 6621.
Late filing of Form 1042. The penalty for
not filing Form 1042 when due (including
extensions) is 5% of the unpaid tax for
each month or part of a month the return is
late, up to a maximum of 25% of the
unpaid tax.
Late payment of tax. The penalty for not
paying tax when due is usually 1 2 of 1% of
the unpaid tax for each month or part of a
month the tax is unpaid. The penalty
cannot exceed 25% of the unpaid tax.
Other penalties. Penalties may be
imposed for negligence, substantial
understatement of tax, and fraud. See
sections 6662 and 6663.

Specific Instructions
File only one Form 1042
consolidating all Form 1042-S
CAUTION
recipient information for both
chapter 3 and 4 purposes regardless of
the number of different clients, branches,
divisions, or types of income for which you
are the withholding agent. However, if you
are acting in more than one capacity (for
example, you are acting as a QI for certain
designated accounts and as an NQI for
other accounts), file a separate Form 1042
for each capacity in which you are acting.

!

A U.S. branch of a participating FFI that is
required to report amounts under
chapter 4 must file a separate Form 1042.
Rounding off to whole dollars. You can
round off cents to whole dollars. If you do
round to whole dollars, you must round all
amounts. To round, drop amounts under
50 cents and increase amounts from 50 to
99 cents to the next dollar. For example,
$1.39 becomes $1 and $2.50 becomes
$3. If you have to add two or more
amounts to figure the amount to enter on a
line, include cents when adding and only
round off the total.
Employer identification number (EIN).
You are generally required to enter your
EIN. However, if you are filing Form 1042
as a QI, WP, or WT, enter your QI-EIN,
WP-EIN, or WT-EIN.
If you are a QSL that is also a QI, enter
your QI-EIN. Otherwise enter the EIN you
have been assigned.
If you are for chapter 4 purposes a
participating FFI or other financial
institution that has been issued a global
intermediary identification number (GIIN)
for chapter 4 reporting purposes, you must

nevertheless obtain an EIN to file Form
1042 (or use your existing EIN such as a
QI-EIN in the case of a QI).
If you are a participating FFI or other
financial institution filing this form on
behalf of a branch other than your U.S.
branch, you cannot use the EIN of the
U.S. branch to file this form and you must
obtain a separate EIN to file this form on
behalf of all your branches other than your
U.S. branch.
If you do not have an EIN, you can
apply for one online at www.irs.gov. Click
on "Apply for an EIN Online." You can
apply for an EIN by telephone at
1-800-829-4933. You also can file Form
SS-4, Application for Employer
Identification Number, by fax or mail. File
amended Forms 1042-S when you receive
your EIN.
To get a QI-EIN, WP-EIN, or WT-EIN,
submit Form SS-4 with your application for
that status. Do not send an application for
a QI-EIN, WP-EIN, or WT-EIN to the
addresses listed in the Instructions for
Form SS-4. Send the application along
with Form SS-4 to:
Internal Revenue Service
LB & I: International: QI Group 1031
290 Broadway, 12th floor
New York, NY 10007-1867 USA
Address. Include the suite, room, or
other unit number after the street address.
If your post office does not deliver mail to
the street address and you have a P.O.
box, show the box number instead of the
street address.
Chapter 3 and 4 status codes of with­
holding agent. See “Form 1042-S,
Explanation of Codes,” for the withholding
agent status codes applicable to these
boxes. See pages 1 and 2 of these
instructions for definitions of codes for
intermediary, qualified intermediary (QI),
withholding foreign partnership (WP),
withholding foreign trust (WT), and
nonqualified intermediary (NQI), qualified
securities lender (QSL), participating FFI,
and registered deemed-compliant FFI.
See the Form 1042-S instructions for
definitions of U.S. branch of a participating
FFI or registered deemed-compliant FFI
treated as a U.S. person, territory financial
institution (FI) treated as a U.S. person,
and flow-through entity. As of 2015, the
chapters 3 and 4 status codes of
withholding agents are required
regardless of the types of payments
reported on this form.
As of 2015, withholding agents
are instructed to use new
CAUTION
withholding agent status codes
on Forms 1042-S for payments made by
foreign branches of U.S. financial
institutions. See “Update to 2015
Instructions for Form 1042-S, boxes 12b

!

and 12c” at www.irs.gov/form1042s. The
U.S. financial institution should continue to
use its own withholding agent chapter 3
and chapter 4 status codes (code 01) for
purposes of completing Form 1042 if there
are any payments made by the U.S. home
office reflected on the form. Otherwise,
use chapter 3 and 4 status codes 34 and
50 (U.S. Withholding Agent-Foreign
branch of FI) unless a more specific status
code applies (for example, a foreign
branch may use chapter 3 status code 12
(Qualified Intermediary) or chapter 4
status code 07 (Registered
Deemed-Compliant FFI-Reporting Model
1 FFI), as applicable based on the
chapter 3 or 4 status of the foreign
branch.)

Section 1
Lines 1 through 60. Except as otherwise
provided in these instructions, include the
tax liability for the period in which the
income was paid or distributed regardless
of whether the liability is under chapter 3
or chapter 4 and regardless of whether the
liability was satisfied through withholding
or was paid by the withholding agent (see
instructions for box 9 of Form 1042-S). Do
not enter any negative amounts on these
lines.
The liabilities reported should also take
into account reductions resulting from
application of the reimbursement and
set-off procedures. See instructions for
Adjustment for Overwithholding later.
Withholding and depositing of tax
is not required under both
CAUTION
chapters 3 and 4 for the same
payment. In the case of a payment for
which withholding is required under
chapters 3 and 4, a withholding agent may
credit the withholding applied under
chapter 4 against its liability for any tax
due under sections 1441, 1442, or 1443.
For a payment subject to withholding
under section 1445 or 1446, withholding
under chapter 4 does not apply.

!

Foreign partners of U.S. partnerships.
To the extent that a domestic partnership
has not distributed a foreign partner's
distributive share of income subject to
withholding under section 1441, 1442,
1443, or under chapter 4, it should not
include any tax liability on lines 1 through
60 for tax relating to the partner's
distributive share in the year the
partnership earns the income. For
distributive shares not actually distributed,
the partnership must include any tax
liability on lines 1 through 60 of the Form
1042 for the following year. Include the tax
liability on the line that represents the
earlier of the following dates.
The date on which the Schedule K-1
(Form 1065) is sent or otherwise furnished
to the foreign partner.
­4­

The due date for furnishing
Schedule K-1 (Form 1065) to the partner.
Include such tax liability for the period
that includes the date the tax was required
to be withheld.
Example. In 2015, USP, a U.S.
partnership, has foreign partners that are
individuals and for which it has obtained
valid documentation to establish their
foreign status. The withholding tax under
section 1441 relating to the distributive
shares of the foreign partners was $120.
USP made no distributions in 2015. On
the 2015 Form 1042, USP did not enter
any amount as tax liability on lines 1
through 60 because it did not distribute
any amounts.
USP made a distribution on February
10, 2016, that related to the 2015
distributive shares of the foreign partners.
USP withheld $100 at the time of the
distribution. USP sent the 2015 Schedules
K-1 (Form 1065) to its partners on April 2,
2016.
On the 2016 Form 1042, USP entered
$100 on line 7. This is the tax liability for
the period (February 8 through 15) during
which it made a distribution. USP entered
$20 on line 16. This is the tax liability for
the period (April 1 through 7) during which
it furnished the Schedules K-1 (Form
1065) to the partners.
Use Form 8804 to report
withholding tax liability on the
partnership's income effectively
connected with a U.S. trade or business.

TIP

Corporate distributions. Do not include
on lines 1 through 60 any tax liability
caused by adjustments of underwithheld
tax on corporate distributions made in
calendar year 2015 if the following apply.
The distributing corporation made a
reasonable estimate of accumulated and
current earnings and profits under
Regulations section 1.1441-3(c)(2)(ii)(A)
or 1.1474-6(c)(2)(ii); and
The distributing corporation or
intermediary immediately paid over the
underwithheld tax by March 15, 2016.
Instead, include these payments of
underwithheld tax on line 64a.
Excise tax on specified federal pro­
curement payments. Include on lines 1
through 60 any withholding obligation
under section 5000C with respect to
specified federal procurement payments.
Report the amount on the line that
corresponds with the date the deposit was
due.
Specified federal procurement
payment. A specified federal
procurement payment means any
payment made pursuant to a contract with
the United States Government entered
into after January 1, 2011, for the
provision of goods, if such goods are
Instructions for Form 1042 (2015)

manufactured or produced in any country
which is not a party to an international
procurement agreement with the United
States, or the provision of services, if such
services are provided in any country which
is not a party to an international
procurement agreement with the United
States.
Qualified intermediaries with no pri­
mary chapter 3 and 4 withholding re­
sponsibility. If you are a QI that did not
assume primary withholding responsibility,
under both chapters 3 and 4, enter the
total amount of the tax liability of U.S.
withholding agent(s) under both chapters
3 and 4 on line 59. Report all other
amounts on the line that corresponds with
the date the liability was incurred.
Note. Reporting on line 59 as described
above also applies to any other entity that
reports on Form 1042 to the extent such
entity claims a credit on line 67 for
amounts withheld by another withholding
agent (whether under chapter 3 or 4).
Overwithholding. If you repaid the
recipient for an amount overwithheld by
reducing the amount withheld on a later
payment, report the reduced amount on
these lines. If you used the reimbursement
procedure for overwithheld amounts for
either chapter 3 or 4 purposes, see
Adjustment for Overwithholding, later.
Escrow procedure. A withholding agent
that withheld tax during calendar year
2015 and that was not required to deposit
with the IRS the amount of tax withheld
during calendar year 2015 pursuant to the
escrow procedure under Regulations
section 1.1471-2(a)(5)(ii) or 1.1441-3(d)
should not report such amount as a liability
on lines 1 through 60 or lines 64a through
64d and should not report such amount as
withheld on lines 63a through 63d. An
amount held in escrow is required to be
reported on the future calendar year return
for the year in which the withholding agent
is required to deposit the amount of tax
with the IRS.
Line 61. Enter the number of Forms
1042-S filed on paper and electronically.
If you are a financial institution or
you file 250 or more Forms
CAUTION
1042-S, you must submit them
electronically.

!

Total Gross Amounts Reported
Lines 62a through 62c. Enter the
amounts reported on all Forms 1042-S for
the calendar year (regardless of whether
the form was filed electronically or on
paper) and for all Forms 1000, Ownership
Certificate.

Instructions for Form 1042 (2015)

Be sure to reconcile amounts on
Form 1042 with amounts on
CAUTION
Forms 1042-S (including Forms
1042-S filed electronically), to avoid
unnecessary correspondence with the
IRS.

!

Line 62a. The amount on line 62a should
equal: The sum of all amounts shown on
Form 1042-S, box 2 that are payments of
U.S. source FDAP income, less the sum of
all amounts that are U.S. source substitute
payments reported on line 62b.
Line 62b. The amount on:
Line 62b(1) should equal the sum of all
amounts shown on Form 1042-S, box 2
that are U.S. source substitute dividend
payments, and
The amount shown on line 62b(2)
should equal all amounts shown on Form
1042-S, box 2 that are U.S. source
substitute payments other than substitute
dividend payments.
See Regulations section 1.1441-2(b)(4)
regarding substitute payments.
Line 62c. The amount on line 62c should
equal the sum of all amounts shown on
Forms 1042-S, box 2, and all amounts
shown as gross interest paid on Forms
1000.
Line 62d. Enter gross amounts
reportable on Forms 1000 and Forms
1042-S if different from the total gross
amounts actually reported on Forms 1000
and Forms 1042-S (as shown on line 62c).

Total Tax Reported as Withheld
or Paid
Lines 63a through 63d. Except as noted
directly below, enter for each line the
amounts reported for all Forms 1042-S
(regardless of whether the form was filed
electronically or on paper) and for all
Forms 1000. The amounts reported on
line 63c should be amounts you repaid to
the beneficial owner or payee by reducing
the amount of any deposit made for a
payment period in the calendar year
following the calendar year of withholding
under the reimbursement procedure (and
should also be reported as a reduction in
tax liability on line 59). See Adjustment for
Overwithholding, later. See Form 1042-S,
box 11 for reporting these corresponding
amounts. The amounts reported on
line 63d should be the amounts paid by
the withholding agent from its own funds
rather than through withholding from the
payment to the recipient. See Form
1042-S, box 9 for the corresponding
amounts.
Line 63e. The amount on line 63e should
equal the sum of lines 63a through 63d.
The amount on line 63e should also equal:
The sum of all amounts shown on
Forms 1042-S, box 10, less

­5­

The sum of all amounts shown on
Forms 1042-S, box 11, plus
The tax assumed on Forms 1000.
If it does not, attach a statement to
Form 1042 explaining the difference.
Amounts withheld and held in escrow (and
not deposited with the IRS) under
Regulations section 1.1471-2(a)(5)(ii) or
1.1441-3(d) are not reported on lines 63a
through 63d until the year they are
deposited with the IRS. See instructions
for lines 1-60, earlier.

Total Net Tax Liability
Line 64a. Include on line 64a any tax
liability resulting from adjustments of
underwithheld tax on corporate
distributions made in calendar year 2015
if:
The distributing corporation made a
reasonable estimate of accumulated and
current earnings and profits under
Regulations sections 1.1441-3(c)(2)(ii)(A)
or 1.1474-6(c)(2)(ii), and
The distributing corporation or
intermediary paid over the underwithheld
tax by March 15, 2016.
If you are a regulated investment
company (RIC), real estate investment
trust (REIT), or personal holding company
(PHC) that paid a dividend subject to
section 852(b)(7), section 857(b)(9), or
section 563(b) (relating to certain
dividends declared in the preceding
October, November, or December), enter
your additional tax liability on those
dividends declared in 2015 but paid no
later than March 15, 2016, less any
additional tax liability on those dividends
declared in 2014 but paid no later than
March 16, 2015. Show any negative
amount in brackets. Attach a statement
showing your calculation.
Lines 64b and 64c. The amount on lines
64b and 64c must equal the sum of the
monthly totals as listed on the Record of
Federal Tax Liability (lines 1-60). You
must designate the amounts as a liability
under chapter 3 on line 64b or under
chapter 4 on line 64c. The amounts shown
on lines 64b and 64c should not include
any amounts shown on lines 64a and 64d.
Do not make any other adjustments to this
line.
Line 64d. Enter on line 64d the total
amount of specified federal procurement
payments multiplied by 2% (.02).
Line 64e. The amount on line 64e should
equal the sum of lines 64a through 64d.
Note. The amount of line 64e should
equal the amount reported on line 63e
plus any amounts reported on line 64a.

Reporting of Taxes Paid and
Overpayment or Balance Due
Line 65. Enter the total tax deposits you
made for the year (including amounts paid
with an extension of time to file).
Line 66. Enter any overpayment reported
on the 2014 Form 1042 that you are
applying as a credit on the 2015 Form
1042. See line 71.
Line 67. You are permitted to take a
credit for amounts withheld by other
withholding agents that relate to the total
net tax liability reported on lines 64b and
64c. For example, you are a QI and the
amount you entered on line 64b includes
amounts withheld by a U.S. withholding
agent under chapter 3 with respect to
payments made to you as an intermediary
on behalf of your account holders. You
may take a credit on line 67 for the
amounts that were withheld by the U.S.
withholding agent. The amount on line 67
should equal the sum of all Forms 1042-S,
box 8, that you file for the year.
Note. All withholding agents (including
QIs, WPs, WTs, NQIs, NWPs, and NWTs)
must verify entries on lines 67a and 67b
by attaching supporting Form(s) 1042-S,
issued to you, to verify the credit amounts
claimed for withholding by other
withholding agents. Failure to do so will
result in the denial of the refund or credit
being claimed. If you are a PTP or a
nominee withholding under section 1446,
the tax paid for a payee may only be
claimed as a credit by the payee.
QSL claiming a credit forward. If you
are a QSL or other withholding agent
claiming a credit forward of prior
withholding on substitute dividends on
line 67b as determined under Notice
2010-46, you should attach Form(s)
1042-S issued to you to support such
credits. If a credit is claimed with respect
to any U.S. source substitute dividends
paid to you from a withholding agent that
has not issued a Form 1042-S to you for
such payments, attach a supporting
statement to Form 1042 indicating the
following to support your credit.
The withholding agent's name, address,
and EIN (if known).
The amount of U.S. source substitute
dividends received from the withholding
agent.
The amount of credit forward you
included on line 67b in connection with
these substitute dividends.
Lines 70a and 70b. Enter on line 70a
any overpayment attributable to
overwithholding under chapters 3 and 4.
Enter on line 70b any overpayment
attributable to excise tax on specified
federal procurement payments.

Line 71. You may claim an overpayment
(the sum of lines 70a and 70b) as a refund
or a credit. Check the applicable box on
line 71 to show which one you are
claiming. If you claim a credit, it can
reduce your required deposits of withheld
tax for 2016.

Adjustment For
Overwithholding

What to do if you overwithheld tax
depends on when you discover the
overwithholding.
Overwithholding discovered by March
15 of the following calendar year. If
you discover that you overwithheld tax by
March 15 of the following calendar year,
you may use any undeposited amount of
tax to make any necessary adjustments
between you and the recipient of the
income before you make a deposit. Repay
the recipient and reduce the amount of
your total deposit. Report the reduced tax
liability on lines 1 through 60 for the
period(s) for which you repaid the
overwithheld tax.
If the undeposited amount is not
enough to make any adjustments, or if you
discover the overwithholding after the
entire amount of tax has been deposited,
you can use either the reimbursement or
the set-off procedure to adjust the
overwithholding.
If March 15 is a Saturday,
TIP Sunday, or legal holiday, the next
business day is the final date for
these actions.
Reimbursement procedure. Under
the reimbursement procedure, you repay
the beneficial owner or payee the amount
overwithheld. You use your own funds for
this repayment and may reimburse
yourself for an amount repaid by reducing
the amount of any subsequent deposit of
tax made during the calendar year or the
subsequent calendar year. You must
make the repayment by the earlier of:
The date you actually file Form 1042-S
for the calendar year in which the amount
was overwithheld, or
The due date for filing Form 1042-S for
the calendar year (generally March 15 of
the year after the calendar year in which
the amount is overwithheld).
The reimbursement amount may not be
more than the amount you actually repaid.
The amount of the reduced tax liability for
amounts repaid to the beneficial owner or
payee during the calendar year must be
reflected on the line for the period you
reduced your liability. The amount
reported on line 59 for the calendar year
for which you overwithheld tax must reflect
the amount of the reduced tax liability for
amounts you repaid the beneficial owner
or payee in the subsequent calendar year,
if applicable. Amounts reported on
­6­

line 63c should be limited to amounts
repaid to the beneficial owner or payee in
the subsequent calendar year (before the
earlier of the filing of the associated Form
1042-S or the due date for such form). On
line 71, indicate that you are claiming a
credit to be applied in the 2016 calendar
year for amounts you repay the beneficial
owner or payee in the subsequent
calendar year (note, you may not claim a
refund for such an amount).
For example, if you overwithhold tax in
2015, you must repay the beneficial owner
by March 15, 2016 (or the date on which
you filed the associated Form 1042-S with
the IRS, if earlier). You must keep a
receipt showing the date and amount of
the repayment and provide a copy of the
receipt to the beneficial owner if you
repaid the beneficial owner. If you repaid
the beneficial owner after year end 2015,
you must report the repayment on
line 63c. You must reduce your Federal
tax liability on line 59 of your 2015 Form
1042 by the amount of the repayment and
claim a credit on line 71 for the difference
between your tax liability and your
deposits with the IRS. You may reimburse
yourself by reducing any subsequent
deposits you make before the end of
calendar year 2016 (the year after the
calendar year in which the amount was
overwithheld).
Set-off procedure. Under the set-off
procedure, you repay the beneficial owner
or payee the amount overwithheld by
reducing the amount you would have been
required to withhold on later payments you
make to that person but only if made
before the earlier of:
The date you actually file Form 1042-S
for the calendar year in which the amount
was overwithheld, or
The due date for filing Form 1042-S for
the calendar year (generally March 15 of
the year after the calendar year in which
the amount is overwithheld).
The amounts reported on lines 63a and
63b should reflect a reduction of any
amount withheld from income paid to a
beneficial owner because you applied the
set-off procedure during the calendar year
or the subsequent calendar year. The
reductions that you applied pursuant to
the set-off procedure during the calendar
year must be reflected on the line for the
period you reduced your liability. The
amount reported on line 59 for the
calendar year for which you overwithheld
tax must reflect reductions that you
applied pursuant to the set-off procedure
during the subsequent calendar year, if
applicable. On line 71, indicate that you
are claiming a credit to be applied to the
2016 calendar year for amounts you
set-off in the subsequent calendar year
(note, you may not claim a refund for such
an amount).

Instructions for Form 1042 (2015)

Overwithholding discovered at a later
date. If you discover after March 15 of the
following calendar year that you
overwithheld tax for the prior year, do not
adjust the amount of tax liability reported
on Form 1042 or on any deposit or
payment for that prior year. Do not repay
the beneficial owner or payee the amount
overwithheld unless you are a QI, WP,
WT, participating FFI, or reporting Model 1
FFI making a claim for a collective refund
under your respective agreement with the
IRS. See Regulations section 1.1471-1(b)
(114) for the definition of a reporting Model
1 FFI.
In this situation, the recipient will have
to file a U.S. income tax return (Form
1040NR, Form 1040NR-EZ, or Form
1120-F) or, if a tax return has already been
filed, a claim for refund (Form 1040X or
amended Form 1120-F) to recover the
amount overwithheld.

Section 2. Reconciliation
of U.S. Source FDAP
Income

!

CAUTION

agents.

As of 2015, this section is no
longer optional. It must be
completed by all withholding

This section is used by the withholding
agent to reconcile the amount of U.S.
source FDAP income reportable under
chapter 4 and paid by the withholding
agent during the calendar year with the
total amount of U.S. source FDAP income
reported on all Forms 1042-S filed by the
withholding agent for the calendar year.
This section also allows reporting of the
amounts of U.S. source FDAP income for
which chapter 4 withholding is required
and reporting of the amounts for which
withholding is not required according to
the exemption from chapter 4 withholding
applicable to each such amount.
Note. The amounts of U.S. source FDAP
income reportable for chapter 4 are:
Payments of U.S. source FDAP income
for which withholding under chapter 4 was
applied to the payment, plus
Payments of U.S. source FDAP income
for which withholding under chapter 4 was
not required but that are subject to
reporting for chapter 3 purposes on Forms
1042-S.
Line 1. Enter the amounts of U.S. source
FDAP income required to be withheld
upon under chapter 4 including amounts
withheld upon but for which no deposit
has been made under an escrow
procedure.
Line 2. Enter amounts of U.S. source
FDAP income not required to be withheld
upon under chapter 4 on lines 2a through
2f according to the exception to
Instructions for Form 1042 (2015)

withholding that applied to each payment
reportable on Form 1042-S. The amount
on line 2g should equal the sum of lines 2a
through 2f.
Line 4. Enter the sum of all amounts
shown on Form 1042-S, box 2 that are
payments of U.S. source FDAP income.
The amount on line 4 should equal the
amount on line 62c.
Line 6. If applicable, provide an
explanation for the variance reported on
line 5. If additional space is needed, attach
a sheet to Form 1042 explaining the
difference.

Section 3

Check the box if you are a dealer or trader
in notional principal contracts or other
derivative contracts that reference in
whole or in part one or more U.S.
securities and that made payments on
such contracts during the calendar year.

Third Party Designee

If you want to allow any individual,
corporation, firm, organization, or
partnership to discuss your 2015 Form
1042 with the IRS, check the “Yes” box in
the Third Party Designee section of the
return. Also, enter the designee's name,
phone number, and any five digits the
designee chooses as his or her personal
identification number (PIN). The
authorization applies only to the tax form
upon which it appears.
If you check the “Yes” box, you are
authorizing the IRS to call the designee to
answer any questions relating to the
information reported on your tax return.
You also are authorizing the designee to:
Exchange information concerning your
tax return with the IRS, and
Request and receive written tax return
information relating to your tax return,
including copies of specific notices,
correspondence, and account transcripts.
You are not authorizing the designee to
receive any refund check, bind you to
anything (including additional tax liability),
or otherwise represent you before the IRS.
If you want to expand the designee’s
authorization, see Pub. 947, Practice
Before the IRS and Power of Attorney.
The authorization automatically expires
one year from the due date (without any
extensions) for filing your 2015 Form
1042. If you or your designee desires to
terminate the authorization, a written
statement conveying your wish to revoke
the authorization should be submitted to
the IRS service center where the return
was processed.

Amended Return

If you have to make changes to your Form
1042 after you submit it, file an amended
Form 1042. Use a Form 1042 for the year
­7­

you are amending. Check the “Amended
Return” box at the top of the form. You
must complete the entire form, including
all filing information for the calendar year,
and sign the return. Attach a statement
explaining why you are filing an amended
return (for example, you are filing because
the tax liability for May was incorrectly
reported due to a mathematical error).
If you also are amending Form(s)
1042-S, see Amended Return in the Form
1042-S instructions.
Do not amend Form 1042 to recover
taxes overwithheld in the prior year. For
more information, see Adjustment for
Overwithholding, earlier.
Privacy Act and Paperwork Reduction
Act Notice. We ask for the information on
this form to carry out the Internal Revenue
laws of the United States. Sections 1441,
1442, 1446 (for PTPs), and 1471-1474
require withholding agents to report and
pay over to the IRS taxes withheld from
certain U.S. source income of foreign
persons. Form 1042 is used to report the
amount of withholding that must be paid
over. Form 1042-S is used to report the
amount of income and withholding to the
payee. Section 6109 requires you to
provide your identifying number on the
return. Routine uses of this information
include giving it to the Department of
Justice for civil and criminal litigation, and
to cities, states, the District of Columbia,
and U.S. commonwealths and
possessions for use in administering their
tax laws. We may also disclose this
information to other countries under a tax
treaty or tax information exchange
agreement, to federal and state agencies
to enforce federal nontax criminal laws, or
to federal law enforcement and
intelligence agencies to combat terrorism.
If you fail to provide this information in a
timely manner, you may be liable for
penalties.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records relating
to a form or its instructions must be
retained as long as their contents may
become material in the administration of
any Internal Revenue law. Generally, tax
returns and return information are
confidential, as required by section 6103.
The time needed to complete and file
these forms will vary depending on
individual circumstances. The estimated
average time is: Recordkeeping, 10 hr.,
31 min.; Learning about the law or the
form, 2 hr., 25 min.; Preparing the form,
4 hr., 34 min.; and Copying, assembling,
and sending the form to the IRS, 32
min.
If you have comments concerning the
accuracy of these time estimates or

suggestions for making this form simpler,
we would be happy to hear from you. You
can send us comments from www.irs.gov/
formspubs/. Click on “More Information”
and then on “Give us feedback.” You can

write to the Internal Revenue Service, Tax
Forms and Publications,
SE:W:CAR:MP:TFP, 1111 Constitution
Ave. NW, IR-6526, Washington, DC
20224. Do not send the form to this

­8­

address. Instead, see Where and When
To File ,earlier.

Instructions for Form 1042 (2015)