Filling out Form 1042-S can be intimidating.
In fact, the process is so challenging that the IRS has a website page focused on the challenges involved: Ten most common errors for completing the Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. The IRS is trying to effectively deal with globalization and the international community. As a result, they assure the site visitor that the page is designed to help you. Although this is probably true, the information delivered is quite difficult for the nonprofessional to understand and properly use to their benefit.
Let us provide you with 2 more of the 10 common errors the IRS wants you to avoid when completing Form 1042-S:
5. The recipients name entered in Box 13 (Recipient’s Name and Address field) is inconsistent with the recipient code entered in Box 12 (Recipient Code field). For example, the “XYZ Pension Fund” is reported as an “Individual” (Recipient code “01”).
6. Box 14 (Recipient’s U.S. Taxpayer Identification Number (TIN)) does not report a TIN when exemption code “01” is entered in Box 6 (Exemption Code field). If an account holder (recipient) does not provide a TIN on Form W-8ECI, Certificate of Foreign Person’s Claim for Exemption From Withholding on Income Effectively Connected with the Conduct of a Trade or Business in the United States, the form is invalid. DO NOT enter exemption code “01” in Box 6. Withhold tax at a rate of 30%.
What exactly is a recipient code? What is the TIN that needs to be provided on Form W-8ECI? If a single piece of the puzzle is missing, will you be taxed at a highest rate? The problem is one mistake can spell disaster. Yes, the IRS is doing their best to enhance the processing of Chapter Three Withholding (CTW) Program information returns. The Internal Revenue Service honestly wants to help, but these are almost Byzantine-like challenges.
When it comes to such key distinctions, it is a mistake to work with an inexperienced accountant. You need to work with a tax team that has the experience and expertise you need when it comes to IRS foreign reporting and withholding requirements. Your tax representative should know how to fill out Form 1042-S because they have done it countless times in the past.
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
