Filling out Form 1042-S is so challenging that the IRS has an entire page on their website that is titled:
Ten most common errors for completing the Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. Explaining that they want to do their best to effectively deal with globalization and the international community, the IRS provides the assurance that the page is designed to help you. This might be the case, but the page is quite intimidating as well to a nonprofessional who lacks the required experience and expertise.
Let us provide you with 2 more of the 10 most common errors the IRS wants you to avoid when completing Form 1042-S:
3. U.S. federal tax withheld reported in Box 7 (U.S. Federal Tax Withheld field) is inconsistent with a “valid tax rate.” This “math error” may result in the issuance of an error notice.
4. Recipient code “20” (Unknown recipient) is entered in Box 12 (Recipient Code field) when a recipient’s name appears in Box 13 (Recipient’s Name and Address field). In general, an “unknown recipient” is a recipient from whom no documentation, or incomplete documentation, has been received by a withholding agent. An unknown recipient is always subject to withholding at the maximum applicable rate.
What exactly is meant by a “valid tax rate” in quotation marks? What exactly defines incomplete documentation? If a single piece of the puzzle is missing, will the recipient be taxed at the highest rate no matter what? Confusing distinctions to say the least. Then again, the IRS is just trying to enhance the processing of Chapter Three Withholding (CTW) Program information returns. The Internal Revenue Service is trying to help, but in truth, these are complicated issues.
You don’t want to make mistakes by working with an inexperienced accountant who does not know everything about IRS foreign reporting and withholding requirements. Your tax representative should not lack experience filling out Form 1042-S. You always need an experienced tax professional on your side to deal with the Internal Revenue Service.
LSL CPAs has the knowledge and experience to guide you through filling out Form 1042-S without making any errors and knowing how to optimize your savings. For more information about Form 1042-S and what LSL CPAs can do for you, please call Yana Weaver at 714.569.1000.
Link to the “Foreign Person’s U.S. Source Income Subject to Withholding” Form 1042-S
