TaxBandits Knowledge Base

What are the new updates in Form 1042 for the 2023 Tax Year?

Here are the new updates for Form 1042 in the 2023 tax year:

• Electronic Filing: There are new rules for filing Form 1042 for the 2023 tax year. Financial institutions and withholding agents that need to file 10 or more information returns during the year or are partnerships with over 100 partners must electronically file Form 1042.  However, based on the feedback from the Withholding agents about issues moving to the electronic filing of Form 1042 for the 2023 tax year, the IRS has delayed the 1042 e-filing requirement.
  
  According to IRS Notice 2024-26, U.S. withholding agents are administratively exempt from the Form 1042 e-filing requirement for calendar year 2024. Foreign withholding agents will be administratively exempt for the calendar years 2024 and 2025. Withholding agents can file Form 1042 on paper instead, and a timely filed paper return will not be penalized for failing to file due to e-filing requirements.   
   
• Section 1446(f) Withholding: From the 2023 tax year onward, a withholding agent who is a broker involved in transferring publicly traded partnership interests must withhold tax under Internal Revenue Code Section 1446(f). This withholding needs to be reported to the IRS on Form 1042.
   
• Revised QI Agreement and QDD Reporting: Starting January 1, 2023, a new Qualified Intermediary (QI) agreement (Revenue Procedure 2022-43) is in effect, replacing the one from Revenue Procedure 2017-15, which ended in December 2022. According to the new QI agreement, every QI that was a "qualified derivatives dealer" (QDD) or had a QDD branch during the tax year must file Schedule Q (Form 1042) for the 2023 tax year.