TaxBandits Knowledge Base

Who must file Form 1042?

Every withholding agent or intermediary that withholds taxes or pays a withholdable payment (which is subject to Chapter 4 withholding) or an amount that requires withholding must file Form 1042 for the previous calendar year with the IRS unless there's an exception.

Additionally, any publicly traded partnership (PTP) or nominee distributing income under section 1446 or any entity obligated to report a distribution on Form 1042-S that is subject to withholding under section 1445 must file Form 1042.

• Withholding Agent: A withholding agent is a U.S. or foreign person who controls the income of a foreign person subject to withholding. A withholding agent can be an individual, trust, estate, partnership, corporation, nominee, government agency, association, or tax-exempt foundation (domestic or foreign).
   
• Intermediary: An intermediary is a person who acts as a custodian, broker, nominee, or agent, regardless of whether that person is the beneficial owner of the amount paid, a flow-through entity, or another intermediary. There are different types of intermediaries, which include:
   
  • Qualified intermediary (QI) 
  • Withholding foreign partnership (WP)
  • Withholding foreign trust (WT)
  • Qualified derivatives dealer (QDD)

However, a withholding agent or intermediary must file Form 1042 with the IRS if any of the following conditions apply:

• You must file or have already filed Form 1042-S for Chapter 3 or 4 purposes, regardless of whether any tax was withheld. Even if you electronically submitted Form 1042-S, you still must file Form 1042.
• You use Form 1042-S to inform a recipient about taxes withheld by your withholding agent.
• You make payments of gross investment income to foreign private foundations that are taxable under section 4948(a).
• You make specified federal procurement payments to any foreign person subject to withholding under section 5000C.
• You pay an eligible deferred compensation item to a covered expatriate, or you are a trustee distributing from a non-grantor trust to a covered expatriate under section 877A.
   

  Define-Section 4948(a) Section 4948(a) refers to a specific provision in the Internal Revenue Code (IRC) of the United States.  Section 4948(a) relates to the taxation of certain foreign private foundations. When a foreign private foundation is subject to taxation under Section 4848(a), it must pay taxes on its net investment income. Define-Section 877A Section 877A refers to a provision in the United States Internal Revenue Code (IRC) that addresses the taxation of expatriates, individuals who renounce their U.S. citizenship, or long-term permanent residents who relinquish their green cards. This section was enacted to prevent individuals from avoiding U.S. taxes by expatriating.