There are separate laws for payments made to U.S. citizens and residents and to payments made to non-U.S. residents or non U.S. aliens (foreign workers or students) as far as the IRS goes. Thus, while you will have to fill the W-2 form for payments received as a worker if you are a U.S. resident, you will have to fill the 1042-S form for payments received if you are a foreign student or worker. According to the IRS, the withholding agent like a financial institute, an employer or a university will send a 1042-S form to all non U.S. residents under it to file all the payments subject to withholding made to them. It is important to note that multiple payments to a single recipient can be filed using a single form.
Before you start filling theIRS Form 1042-S, you must know that there are a few payments that must be reported on the form even if they aren’t subject to withholding. For instance, educational expenses under scholarships and payment for services performed outside the U.S. are not subject to withholding but are still required to be filed in the form.
A few fields that are mostly confusing and can be difficult to fill are:
- Box 1 (Income Code) – The most appropriate codes which would identify the income source here would be 12, 15, 16, 18, 19 and 50.
- Box 2 (Gross Income) – According to your income source, you will enter the amount paid to you in the calendar year including the withholding tax.
- Box 3 (Withholding Allowance)- You will leave the box empty unless your income code is 15 or 16. With these two income sources, your taxable income will be reduced. You will have to enter in dollars the amount that it would be reduced by.
- Box 4 (Net Income)- This one is simple math. Simply minus the amount in Box 3 from the amount in Box 2.
- Box 5 (Tax Rate)- You would enter the tax rate applicable as on Gross Income or Net Income.
- Box 6 (exemption Code) – Codes from 00 to 10 can be inserted here which would identify how you are eligible for exemption.
- Box 7 (Federal Tax Withheld) – The amount of tax that will be deducted will be put here. Simply calculate the tax rate with net income to get the answer.
- Box 9 (Total Tax Withheld) – The amount withheld by other agents (Box 8) plus the amount in Box 7.
- Box 13 a, 13 b, 13 c (Recipient’s name, code and address) – If the recipient’s name is not known, the name would be ‘unknown recipient’ while the code will be 00 and the address will be a blank space. Other recipient codes can be found in the form.
Other boxes are self explanatory and you will find all the information on how to fill them within the form.
When it comes to filling the form, you can either submit the form electronically with the help of a high quality e-filing software or can utilize the option of downloading the form, filling it and the mailing it to the IRS.