1042 Instructions for Form 1042

2020

Instructions for Form 1042

Department of the Treasury
Internal Revenue Service

Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
Section references are to the Internal Revenue
Code unless otherwise noted.

Future Developments

For the latest information about
developments related to Form 1042 and
its instructions, such as legislation
enacted after they were published, go to
IRS.gov/Form1042.

What's New

The following clarifications have been
made to Form 1042:
• On page 1, a “Note” was inserted
immediately below the Record of Tax
Liability (lines 1 through 60) that clarifies
that the totals from the Record of Tax
Liability table are entered on lines 64b
through 64d, in the manner indicated in
the instructions for those lines.
• On page 2, a heading was inserted
before lines 64a through 71 indicating that
those lines pertain to Computation of Tax
Due or Overpayment.

Reminders
Reliance on proposed regulations reducing burden under FATCA and
Chapter 3. On December 18, 2018, the
Internal Revenue Service and Department
of Treasury issued proposed regulations
(83 FR 64757) to reduce taxpayer burden
with respect to certain requirements under
Chapters 3 and 4 of the Code. The
proposed regulations provide that, under
section 7805(b)(1)(C), taxpayers may
generally rely on the proposed regulations
until final regulations are issued.
Specifically, for purposes of these
instructions, a withholding agent may rely
on the following provisions of these
proposed regulations in connection with
completing Form 1042.
• Withholding and reporting in a
subsequent year. A partnership or trust
that is permitted to withhold in a
subsequent year with respect to a foreign
partner's or beneficiary's share of income
for the prior year may designate the
deposit of the withholding as attributable
to the preceding year and report the
associated amounts on Forms 1042 and
1042-S for the preceding year. See
Foreign partners of U.S. partnerships and
foreign beneficiaries of U.S. trusts, later.
• Adjustments to overwithholding
under the reimbursement and set-off
procedures. A withholding agent may
make adjustments to overwithholding
using either the reimbursement or setoff
Oct 28, 2020

procedures until the extended due date for
filing Form 1042-S (unless the Form
1042-S has already been filed or
furnished). Additionally, a withholding
agent may use the extended due date for
filing a Form 1042 to claim a credit for any
adjustments made to overwithholding.

section 871(m) transaction (rather than
just payments made under notional
principal contracts or other derivatives
contracts that reference a U.S. stock or
underlying security). Any withholding
agent making such a payment must
complete Section 3.

Centralized partnership audit regime.
Section 1101 of the Bipartisan Budget Act
(BBA) of 2015 repealed the TEFRA
partnership procedures and the Electing
Large Partnership (ELP) provisions and
replaced them with a new centralized
partnership audit regime effective for
partnership tax years beginning on or after
January 1, 2018. The new regime
provides for determination, assessment,
and collection of underpayments at the
partnership level unless certain elections
are made by the partnership. Under these
rules, a partnership (or a pass-through
partner) may be required to withhold under
chapter 3 or chapter 4 when there has
been an adjustment under the centralized
partnership audit regime to an item of
income or gain allocable to a foreign
person (or any other person subject to
withholding). If the adjustment is to an
amount subject to withholding that is
reportable on Form 1042, the partnership
(or pass-through partner) should report
the withholding on Form 1042 for the year
in which it pays the tax required to be
withheld. See section 6241(9).

Section 871(m) transition. On
December 16, 2019, Notice 2020-2,
2020-3 I.R.B. 327, was issued announcing
the Department of the Treasury and the
IRS intention to amend the section 871(m)
regulations to further delay the effective/
applicability date of certain rules in those
final regulations and certain requirements
of a QDD.

Qualified derivatives dealers (QDDs).
A withholding agent that is a Qualified
Intermediary (QI) acting as a QDD must
assume certain withholding and reporting
responsibilities with respect to payments
made on potential section 871(m)
transactions in its QDD capacity. Form
1042 includes Section 4, which a QI that is
a QDD (or has a branch that is a QDD)
must complete if it made any payments in
its QDD capacity that are reportable on
this form. For more information on the
withholding and reporting requirements of
a QDD, see the QI Agreement in Rev.
Proc. 2017-15, 2017-03 I.R.B. 437. See
also section 871(m) and Notice 2020-2.
These instructions provide guidance to
QDDs regarding the proper withholding
agent status code to use when filing Form
1042 (and Form 1042-S). See Chapter 3
and 4 status codes of withholding agent,
later.
Potential 871(m) transactions. Section
3 of Form 1042 applies to payments made
by a withholding agent under any potential
Cat. No. 54843T

Schedule Q (Form 1042). If the
taxpayer, or any branch of the taxpayer, is
a QDD, the taxpayer must attach to Form
1042 a Schedule Q (Form 1042), Tax
Liability of Qualified Derivatives Dealer
(QDD), for each QDD. Schedule Q (Form
1042) replaces the previous requirement
to attach a statement to the Form 1042 to
provide information regarding a QDD's tax
liability.
Line 63c, Adjustments to overwithholding. Withholding agents that reduce
their withholding by repaying a beneficial
owner in the year following the calendar
year of overwithholding pursuant to the
reimbursement or set-off procedures
should report such repayments on
line 63c(1). Withholding agents that
increase their withholding in the year
following the calendar year of
underwithholding by withholding on future
payments made to a beneficial owner or
from other property or additional
contributions of a beneficial owner that are
held in custody or otherwise controlled by
the withholding agent should report the
additional withholding on line 63c(2).
Withholding agents should also report on
line 63c(2) any other amounts withheld in
the year following the calendar year in
which the related payment was made (to
the extent permitted under an applicable
regulation section in chapter 3 or 4). See
the instructions for Lines 63a through 63e,
later.
Lines 65a and 65b. Withholding agents
should use line 65b to report deposits of
tax withheld in the year following the
calendar year in which the related
payment was made. See Deposit
Requirements, later, for when a
withholding agent should designate a

deposit as being made for the calendar
year in which the payment was made.
Chapter 3 and 4 status codes. The
chapter 3 and 4 status codes of
withholding agents are required
regardless of the types of payments
reported on this form.
Escrow procedure. See the instructions
for Lines 1 through 60, later, if you are
using the escrow procedure under
Regulations section 1.1471-2(a)(5)(ii) or
1.1441-3(d) (and are not depositing the
amount of tax withheld with the IRS during
the year).
Rounding. These instructions have been
modified to require withholding agents to
round amounts so that only whole dollar
amounts are reported. See Rounding off
to whole dollars, later.

General Instructions
Purpose of Form

Use Form 1042 to report the following.
• The tax withheld under chapter 3
(excluding withholding under sections
1445 and 1446 except as indicated below)
on certain income of foreign persons,
including nonresident aliens, foreign
partnerships, foreign corporations, foreign
estates, and foreign trusts.
• The tax withheld under chapter 4 on
withholdable payments. For the
withholding requirements of chapter 4, see
Regulations sections 1.1471-2(a),
1.1471-4(b), and 1.1472-1(a).
• The tax withheld pursuant to section
5000C on specified federal procurement
payments.
• The tax withheld under section 877A on
payments of eligible deferred
compensation items or distributions from
nongrantor trusts to a covered expatriate.
• Payments that are reported on Form
1042-S under chapter 3 or 4. See
Regulations section 1.1474-1(d)(2)(i) for
the definition of a chapter 4 reportable
amount (which are amounts required to be
reported on Form 1042-S for chapter 4
purposes) and Regulations section
1.1461-1(c)(2) for amounts subject to
reporting for chapter 3 purposes.
Certain distributions subject to section
1445 withholding tax. Publicly traded
trusts, real estate investment trusts, and
regulated investment companies that are
qualified investment entities (as defined
under section 897(h)(4)) must withhold
section 1445 tax on certain distributions
and report such amounts on Form 1042.
For more information, see Regulations
section 1.1445-8 and the Instructions for
Form 1042-S.
Publicly traded partnerships (section
1446 withholding tax). For purposes of
reporting on Form 1042, a publicly traded

partnership (PTP) must withhold section
1446 tax on distributions of effectively
connected income (ECI) to its foreign
partners. A nominee that receives a
distribution of ECI from a PTP and is
treated as the withholding agent must use
Form 1042 to report the tax withheld. For
this purpose, a nominee is a domestic
person holding an interest in the PTP on
behalf of one or more foreign partners. For
more information, see Regulations section
1.1446-4 and Pub. 515, Withholding of
Tax on Nonresident Aliens and Foreign
Entities.

Who Must File

Every withholding agent or intermediary
who receives, controls, has custody of,
disposes of, or pays a withholdable
payment (to which chapter 4 withholding
applies) or an amount subject to
withholding, must file an annual return for
the preceding calendar year on Form 1042
unless an exception to filing applies. Also,
any PTP or nominee making a distribution
of ECI under section 1446, or any entity
required to report a distribution on Form
1042-S that is subject to withholding under
section 1445, must file Form 1042 for the
preceding calendar year.
You must file Form 1042 if any of the
following applies.
• You are required to file or otherwise file
Form(s) 1042-S for purposes of either
chapter 3 or 4 (whether or not any tax was
withheld or was required to be withheld to
the extent reporting is required). File Form
1042 even if you file Form(s) 1042-S
electronically.
• You file Form(s) 1042-S to report to a
recipient tax withheld by your withholding
agent.
• You pay gross investment income to
foreign private foundations that are
subject to tax under section 4948(a).
• You pay any foreign person specified
federal procurement payments that are
subject to withholding under section
5000C.
• You pay an eligible deferred
compensation item to a covered expatriate
or you are a trustee making a distribution
from a nongrantor trust to a covered
expatriate under section 877A.
• You are a qualified intermediary (QI),
withholding foreign partnership (WP),
withholding foreign trust (WT),
participating foreign financial institution
(FFI), or reporting Model 1 FFI making a
claim for a collective refund under your
respective agreement with the IRS. See
Regulations section 1.1471-1(b)(114) for
the definition of a reporting Model 1 FFI.

Withholding Agent

Any person required to withhold tax is a
withholding agent. A withholding agent
may be an individual, trust, estate,
partnership, corporation, nominee,
-2-

government agency, association, or
tax-exempt foundation, whether domestic
or foreign. For purposes of chapter 4, a
withholding agent includes a participating
FFI or registered deemed-compliant FFI to
the extent such FFI is required to withhold
tax. See Regulations section 1.1473-1(d)
for the definition of a withholding agent for
purposes of chapter 4.
Liability for tax. As a withholding agent,
you are personally liable for any tax
required to be withheld as well as interest
and any applicable penalties. A
withholding agent acting through an agent
is liable for any failure of the agent to
deposit any tax required to be withheld
and deposited even if the agent is also a
withholding agent and is itself separately
liable for the failure to comply with the
provisions of chapter 3 or 4.
For purposes of chapter 3, if you fail to
withhold and the foreign payee fails to
satisfy its U.S. tax liability, then both you
and the foreign person are liable for tax,
as well as interest and any applicable
penalties. The applicable tax will be
collected only once. If the foreign person
satisfies its U.S. tax liability, you are not
liable for the tax but remain liable for any
interest and penalties for failure to
withhold.

Intermediary

An intermediary is a person who acts as a
custodian, broker, nominee, or otherwise
as an agent for another person, regardless
of whether that other person is the
beneficial owner of the amount paid, a
flow-through entity, or another
intermediary.

Qualified intermediary. A QI is an
intermediary (or in the case of a QDD, a
principal) that is a party to a QI Agreement
with the IRS described in Regulations
section 1.1441-1(e)(5)(iii). For information
on the QI Agreement, see IRS.gov/
Businesses/Corporations/QualifiedIntermediary-System.
Withholding foreign partnership or
withholding foreign trust. A WP or WT
is a foreign partnership or trust that has
entered into a withholding agreement with
the IRS described in Regulations section
1.1441-5(c)(2) and (e)(5) in which it
agrees to assume primary withholding
responsibility under chapters 3 and 4 for
all payments that are made to it for its
partners, beneficiaries, or owners.
Nonqualified intermediary. A
nonqualified intermediary (NQI) is any
intermediary that is not a U.S. person and
that is not a QI.
Nonwithholding foreign partnership. A
nonwithholding foreign partnership (NWP)
is a foreign partnership that is not a
withholding foreign partnership.
Instructions for Form 1042 (2020)

Nonwithholding foreign trust. A
nonwithholding foreign trust (NWT) is a
foreign trust that is not a withholding
foreign trust.
Qualified derivatives dealer (QDD). A
QDD is a qualified intermediary (QI) that is
an eligible entity that agrees to assume
the requirements of a QDD and the other
requirements in the QI Agreement. Any
applicable home office or branch that
seeks to be a QDD must qualify and be
approved for QDD status. A QDD must
document itself to a withholding agent with
a Form W-8IMY indicating that it is acting
as a QDD for payments with respect to
potential section 871(m) transactions and
underlying securities that it receives in a
principal capacity, separately identify the
home office or branch as the recipient on a
withholding statement (if necessary), and
indicate on the form that it will assume
primary chapters 3 and 4 withholding
responsibilities and primary Form 1099
reporting and backup withholding
responsibilities for certain payments it
makes and receives as a QDD. See
Regulations section 1.1441-1(e)(6) and
the QI Agreement in Rev. Proc. 2017-15
for more information. See also Notice
2020-2, described in Section 871(m)
transition, earlier.
Qualified securities lender. A qualified
securities lender (QSL) is a foreign
financial institution that is a bank,
custodian, broker-dealer, or clearing
organization subject to regulatory
supervision in its home jurisdiction and
that is:
1. Regularly engaged in the business
of borrowing securities of U.S.
corporations and lending such securities
to unrelated customers; and
2. Subject to audit by the IRS under
section 7602 or, in the case of a QI, an
external auditor.
For further information about
requirements for QSL status and the
withholding requirements for substitute
dividend payments, see Notice 2010-46,
2010-24 I.R.B. 757. An entity may claim
QSL status and be treated as a recipient
for substitute dividend payments made
before January 1, 2023. See Notice
2020-2.
Foreign financial institution. A foreign
financial institution (FFI) is a foreign entity
described in Regulations section
1.1471-5(d).
Registered deemed-compliant FFI. A
registered deemed-compliant FFI (as
defined in Regulations section 1.1471-5(f)
(1)) is an FFI that is deemed to satisfy the
requirements of section 1471(b) of the
Code. This includes a reporting Model 1
FFI or branch of an FFI that is a reporting
Model 1 FFI (see Regulations section
Instructions for Form 1042 (2020)

1.1471-1(b)(114) for the definition of
reporting Model 1 FFI).
Participating FFI. A participating FFI is
an FFI that has agreed to satisfy the
obligations of an FFI agreement under
chapter 4 with respect to all of its
branches of the FFI, other than a branch
that is a reporting Model 1 FFI or a U.S.
branch. This includes a reporting Model 2
FFI (that has entered into an FFI
agreement with respect to a branch) and a
QI branch of a U.S. financial institution
unless such branch is a reporting Model 1
FFI.
Nonparticipating FFI. A
nonparticipating FFI is an FFI that is not a
participating FFI, deemed-compliant FFI,
or exempt beneficial owner.
Recalcitrant account holder.
Generally, a recalcitrant account holder is
an account holder of a participating or
deemed-compliant FFI that failed to
provide the documentation required under
chapter 4 to determine the account
holder’s status or to enable the FFI to
report the account as a U.S. account. See
Regulations section 1.1471-5(g).
Passive nonfinancial foreign entity
(NFFE). A passive NFFE is a nonfinancial
foreign entity other than an excepted
NFFE, including a WP, WT, QI, or direct
reporting NFFE. See Regulations sections
1.1471-1(b)(80) and 1.1472-1(b).
For chapter 4 purposes, an
intermediary must provide its
CAUTION chapter 4 status to a withholding
agent to determine whether withholding
applies to the payment. Thus, a chapter 4
status must be provided for a withholdable
payment made to a foreign entity.

!

Where and When To File

Mail Form 1042 by March 15, 2021, to:
Internal Revenue Service
P.O. Box 409101
Ogden, UT 84409
Extension of time to file. If you need
more time to file Form 1042, you may
submit Form 7004, Application for
Automatic Extension of Time To File
Certain Business Income Tax, Information,
and Other Returns.
Form 7004 does not extend the time for
payment of tax.

Additional Information

For details on the withholding of tax, see
Pub. 515. You can get Pub. 515 from
IRS.gov.

Need Assistance?

If you need help completing Form 1042,
call 267-941-1000 (not a toll-free number)
-3-

from 6:00 a.m. to 11:00 p.m. Eastern time
or write to:
Internal Revenue Service
International Section
Philadelphia, PA 19255-0725

Income Tax Withholding
on Wages, Pensions,
Annuities, and Certain
Other Deferred Income

Use Form 941, Employer’s QUARTERLY
Federal Tax Return, to report income tax
withheld and social security and Medicare
taxes on wages paid to a nonresident
alien employee.
Payments of pensions, annuities, and
certain other deferred income paid to a
foreign person are subject to withholding
under section 1441 (rather than section
3405). Report these payments on Forms
1042 and 1042-S.
Use Schedule H (Form 1040),
Household Employment Taxes, to report
income tax withheld and social security
and Medicare taxes on wages paid to a
nonresident alien household employee.

Election To Withhold
Under Section 3406

If you are a participating FFI that has
made an election to withhold under
section 3406 instead of withholding under
chapter 4, use Form 945 to report tax
withheld on a withholdable payment that is
also a reportable payment made to any of
your recalcitrant account holders that are
also U.S. nonexempt recipients subject to
backup withholding. Also, use Form 945 to
report tax withheld on a withholdable
payment that is also a reportable payment
made to recalcitrant account holders of a
participating or registered
deemed-compliant FFI that is an NQI,
NWP, or NWT, or a QI that elects to be
withheld upon under section 1471(b)(3),
and from whom you received a
withholding statement that indicates that
such FFI has elected for withholding under
section 3406 to apply instead of
withholding under chapter 4 with respect
to one or more recalcitrant account
holders. See Regulations section
1.1471-4(b) and 1.1474-1(d)(4)(i)(B). A
withholding QI, WP, or WT that is an FFI
should also use Form 945 if it elects to
withhold under section 3406 on
withholdable payments made to certain
recalcitrant account holders.

Deposit Requirements

You are required to use the Electronic
Federal Tax Payment System (EFTPS),
discussed later, to deposit the tax withheld
and required to be shown on Form 1042
(regardless of whether withholding was

applied under chapter 3 or 4 or with
respect to a specified federal procurement
payment).

!

To avoid a penalty, do not mail
your deposits directly to the IRS.

CAUTION

The amount of tax you are required to
withhold determines the frequency of your
deposits. The following rules explain how
often deposits must be made.
Note. If you are requesting an extension
of time to file using Form 7004, follow
these rules to see if you must make a
deposit of any balance due or if you can
pay it with Form 7004. See Form 7004 and
its instructions for more information.
1. If at the end of any quarter-monthly
period the total amount of undeposited
taxes is $2,000 or more, you must deposit
the taxes within 3 business days after the
end of the quarter-monthly period. (A
quarter-monthly period ends on the 7th,
15th, 22nd, and last day of the month.) A
business day is any day other than a
Saturday, Sunday, or legal holiday in the
District of Columbia.
2. If at the end of any month the total
amount of undeposited taxes is at least
$200 but less than $2,000, you must
deposit the taxes within 15 days after the
end of the month. If you make a deposit of
$2,000 or more during any month except
December under rule 1, earlier, carry over
any end-of-the-month balance of less than
$2,000 to the next month. If you make a
deposit of $2,000 or more during
December, any end-of-December balance
of less than $2,000 should be remitted
with your Form 1042 by March 15, 2021.
3. If at the end of a calendar year the
total amount of undeposited taxes is less
than $200, you may either pay the taxes
with your Form 1042 or deposit the entire
amount by March 15, 2021.
Electronic deposit requirement. You
must make electronic deposits of all
depository tax liabilities using EFTPS. If
you fail to use EFTPS, you may be subject
to a 10% penalty. To enroll in or get more
information about EFTPS, call
800-555-4477 or visit EFTPS.gov.
Depositing on time. For deposits
made by EFTPS to be on time, you must
submit the deposit by 8 p.m. Eastern time
the day before the date the deposit is due.
If you use a third party to make deposits
on your behalf, they may have different
cut-off times.
Same-day wire payment option. If you
fail to initiate a deposit transaction on
EFTPS by 8 p.m. Eastern time the day
before the date a deposit is due, you still
can make your deposit on time by using
the Federal Tax Collection Service
(FTCS). If you ever need the same-day

wire payment method, you will need to
make arrangements with your financial
institution ahead of time. Check with your
financial institution regarding availability,
deadlines, and costs. Your financial
institution may charge you a fee for
payments made this way. To learn more
about the information you will need to
provide to your financial institution to make
a same-day wire payment, visit
EFTPS.gov to download the Same-Day
Payment Worksheet.
Note. All payments should be made in
U.S. dollars.
Escrow procedure. See the instructions
for Lines 1 through 60, later, if you are
using the escrow procedure under
Regulations section 1.1471-2(a)(5)(ii) or
1.1441-3(d) (and are not depositing the
amount of tax withheld with the IRS during
the year). Under Regulations section
1.1471-2(a)(5)(ii) or 1.1441-3(d), if a
withholding agent is not able to determine
the portion of a payment subject to
withholding (for example, because it is
unable to determine the source of the
income at the time of the payment), a
withholding agent can follow the escrow
procedures by withholding 30% on the
entire payment and depositing the amount
withheld in an escrow account instead of
depositing such amounts with the IRS.
With respect to such payment, the
withholding will be due the earlier of the
date a determination is made with respect
to the amount subject to withholding or 1
year from the date the amount is placed in
escrow. To the extent that withholding is
not required, the escrowed amount must
be repaid to the payee. Note that generally
an amount placed in escrow during 1
calendar year will be reported on a Form
1042 the following year. See the
instructions for Lines 1 through 60, later, if
you are using the escrow procedures and
are not depositing the amount of tax
withheld with the IRS during the year.
Deposits made during subsequent
year. If you are making a deposit of tax
withheld in the year following the calendar
year in which the related payment was
made (to the extent permitted under an
applicable regulation section in chapter 3
or 4), you must designate the deposit at
the time that it is made as attributable to
the calendar year in which the payment
was made. In such a case, you should
report the tax paid on line 65b.
For example, if a real estate investment
trust (REIT) declares a dividend to
shareholders of record in October,
November, or December of 2020, but
pays the dividend in January of 2021,
under section 857(b)(9), the dividend is
treated as having been paid by the REIT
and received by each shareholder on
December 31, 2020. If the REIT chooses
-4-

to withhold when it pays the dividend in
January of 2021 (pursuant to the
procedures for adjusting underwithholding
in Regulations section 1.1461-2(b) or
1.1474-2(b)), it should report the liability
with respect to the distribution on its 2020
Form 1042 and should designate the
deposit of such tax as being made for
2020 (if the deposit is made by March 15,
2021).
Additionally, under proposed
regulations (83 FR 64757), a partnership
or trust that is permitted to withhold in a
subsequent year with respect to a foreign
partner's or beneficiary's share of income
may designate the deposits of the
withholding as attributable to the
preceding calendar year. See Foreign
partners of U.S. partnerships and foreign
beneficiaries of U.S. trusts, later.

Interest and Penalties

If you file Form 1042 late, or fail to pay or
deposit the tax when due, you may be
liable for penalties and interest unless you
can show that the failure to file or pay was
due to reasonable cause and not willful
neglect.
You do not have to figure the

TIP amount of any interest or penalties

you may owe. Because figuring
these amounts can be complicated, the
IRS will do it for you and send you a bill for
any amount due.
If you include interest or penalties with
your payment, identify and enter the
amount in the bottom margin of Form
1042. Do not include interest or penalties
in the balance due on line 69.
Interest. Interest is charged on taxes not
paid by the due date, even if an extension
of time to file is granted. Interest is also
charged on penalties imposed for failure
to file, negligence, fraud, and substantial
understatements of tax from the due date
(including extensions) to the date of
payment. Interest is figured at a rate
determined under section 6621.

Late filing of Form 1042. The penalty for
not filing Form 1042 when due (including
extensions) is 5% of the unpaid tax for
each month or part of a month the return is
late, up to a maximum of 25% of the
unpaid tax.
Late payment of tax. The penalty for not
paying tax when due is usually one-half of
1% of the unpaid tax for each month or
part of a month the tax is unpaid. The
penalty cannot exceed 25% of the unpaid
tax.
Other penalties. Penalties may be
imposed for negligence, substantial
understatement of tax, and fraud. See
sections 6662 and 6663.

Instructions for Form 1042 (2020)

Avoid Common Errors

To ensure that your Form 1042 can be
correctly processed, be sure that you do
the following.
• Carefully read the information provided
in Pub. 515 and these instructions.
• Complete all required information for
the withholding agent including the
withholding agent’s name, address,
chapter 3 and chapter 4 status codes, and
the EIN, QI-EIN, WP-EIN, or WT-EIN.
Note that you must include the
withholding agent’s chapter 3 and
chapter 4 status codes regardless of
the types of payments being reported
on Form 1042.
• Ensure that the correct EIN is provided.
If you are filing Form 1042 as a QI, WP, or
WT, enter your QI-EIN, WP-EIN, or WTEIN.
• Lines 1 through 60, Record of Federal
Tax Liability, must show the federal tax
liability for payments made during the
applicable quarter-monthly period. This
section reports the tax liability, not the tax
deposited by the withholding agent.
• The sum of the monthly totals in Section
1 (lines 5, 10, 15, 20, 25, 30, 35, 40, 45,
50, 55, and 60) must match the amount of
total tax liability reported on lines 64b, 64c,
and 64d.
• Do not include amounts reported as
adjustments on line 64a in the Record of
Federal Tax Liability (lines 1 through 60).
• You must designate the tax liability as
either a chapter 3 tax liability or a
chapter 4 tax liability. Report the portion of
the tax liability for the calendar year that is
a chapter 3 tax liability on line 64b. Report
the portion of the tax liability for the
calendar year that is a chapter 4 tax
liability on line 64c.
• You must complete Section 2,
Reconciliation of Payments of U.S. Source
FDAP Income. Section 2 must be
completed even if you have not withheld
any amounts under chapter 4.

Specific Instructions
File only one Form 1042
consolidating all Form 1042-S
CAUTION recipient information for both
chapter 3 and 4 purposes regardless of
the number of different clients, branches,
divisions, or types of income for which you
are the withholding agent. However, if you
are acting in more than one capacity (for
example, you are acting as a QI for certain
designated accounts and as an NQI for
other accounts), file a separate Form 1042
for each capacity in which you are acting.

!

A U.S. branch of a participating FFI that is
required to report amounts under
chapter 4 must file a separate Form 1042.
Rounding off to whole dollars. You
must round off cents to whole dollars. To
round off amounts to the nearest dollar,
Instructions for Form 1042 (2020)

drop amounts under 50 cents and
increase amounts from 50 to 99 cents to
the next dollar. For example, $1.39
becomes $1 and $2.50 becomes $3. If
you have to add two or more amounts to
figure the amount to enter on a line,
include cents when adding and only round
off the total.
Employer identification number (EIN).
You are required to enter your EIN. If you
are filing Form 1042 as a QI, WP, or WT,
enter your QI-EIN, WP-EIN, or WT-EIN.
If you are a QSL that is also a QI, enter
your QI-EIN. Otherwise, enter the EIN you
have been assigned.
If you are for chapter 4 purposes a
participating FFI or other financial
institution that has been issued a global
intermediary identification number (GIIN)
for chapter 4 reporting purposes, you must
nevertheless get an EIN to file Form 1042
(or use your existing EIN, such as a
QI-EIN in the case of a QI if filing in such
capacity).
If you are a participating FFI or other
financial institution filing this form on
behalf of a branch other than your U.S.
branch, you cannot use the EIN of the
U.S. branch to file this form and you must
get a separate EIN to file this form on
behalf of all your branches other than your
U.S. branch.
If you do not have an EIN, you can
apply for one online at IRS.gov/EIN. You
can apply for an EIN by telephone at
800-829-4933. You can also file Form
SS-4, Application for Employer
Identification Number, by fax or mail. File
amended Forms 1042-S when you receive
your EIN.
To get a QI-EIN, WP-EIN, or WT-EIN,
submit Form SS-4 with your application for
that status. Do not send an application for
a QI-EIN, WP-EIN, or WT-EIN to the
addresses listed in the Instructions for
Form SS-4. Send the application along
with Form SS-4 to:
Internal Revenue Service
LB&I: International: QI Group 1031
290 Broadway, 12th floor
New York, NY 10007-1867 USA
Address. Include the suite, room, or
other unit number after the street address.
If your post office does not deliver mail to
the street address and you have a P.O.
box, show the box number instead of the
street address.
Chapter 3 and 4 status codes of withholding agent. Enter your chapter 3 and
chapter 4 status codes from the list of
“Type of Recipient, Withholding Agent,
Payer, or Intermediary Code” on Form
1042-S. You must enter both a chapter 3
and a chapter 4 withholding agent status
code regardless of the type of payment
-5-

being made. See pages 2 and 3 of these
Form 1042 instructions for definitions of
intermediary, qualified intermediary (QI),
withholding foreign partnership (WP),
withholding foreign trust (WT),
nonqualified intermediary (NQI), qualified
securities lender (QSL), participating FFI,
and registered deemed-compliant FFI.
See the Form 1042-S instructions for
definitions of U.S. branch of a participating
FFI or registered deemed-compliant FFI
treated as a U.S. person, territory financial
institution (FI) treated as a U.S. person,
and flow-through entity.
Withholding agents should use
the applicable code that is most
CAUTION specific to your status (for
example, chapter 3 status code 12
(Qualified Intermediary)).

!

Withholding agents are to use specified
chapter 4 status codes on Forms 1042-S
for payments made. See the 2020
Instructions for Form 1042-S. A U.S.
financial institution should continue to use
its own withholding agent chapter 4 status
code (code 01) for purposes of completing
Form 1042 if there are any payments
made by the U.S. home office reflected on
the form. Otherwise, use chapter 4 status
code 50 (U.S. Withholding Agent-Foreign
branch of FI) unless a more specific status
code applies (for example, chapter 4
status code 07 (Registered
Deemed-Compliant FFI-Reporting Model
1 FFI)).
A QI that is a QDD should use the
withholding agent chapter 3 status code
for a QI (code 12) for purposes of filing its
Form 1042, regardless of the types of
payments it made for the calendar year.
However, a QI that is a QDD should use
the withholding agent chapter 3 status
code for a QDD (code 35) for purposes of
reporting on Form 1042-S a payment that
it made in its capacity as a QDD.

Section 1. Record of
Federal Tax Liability
Lines 1 through 60. Except as otherwise
provided in these instructions, include the
tax liability for the period in which the
income was paid or distributed regardless
of whether the liability is under chapter 3
or chapter 4 and regardless of whether the
liability was satisfied through withholding
or was paid by the withholding agent (see
the instructions for box 11 of Form
1042-S). Do not enter any negative
amounts on these lines. If you are required
to report a reduction to liability on line 59
(because you made a repayment under
the reimbursement or set-off procedure),
and this results in a negative amount of tax
liability for the period corresponding to
line 59, you should instead report any
negative amount for the next earlier
period(s) so that you are not reporting any

negative amounts on lines 1 through 60.
See Adjustment for Overwithholding, later.
Lines 1 through 60 must show the
withholding agent’s record of
CAUTION federal tax liability for payments
made during the applicable quartermonthly period. Withholding agents
should report the tax liability for each
period, rather than the amount of tax
actually deposited with the IRS. As such,
the sum of lines 5, 10, 15, 20, 25, 30,
35, 40, 45, 50, 55, and 60 should be
reported on lines 64b through 64d, as
applicable (see instructions for lines
64b through 64d, later).

!

Withholding and depositing of tax
is not required under both
CAUTION chapters 3 and 4 for the same
payment. In the case of a payment for
which withholding is required under
chapters 3 and 4, a withholding agent may
credit the withholding applied under
chapter 4 against its liability for any tax
due under section 1441, 1442, or 1443.
For a payment subject to withholding
under section 1445 or 1446, withholding
under chapter 4 does not apply.

!

Foreign partners of U.S. partnerships
and foreign beneficiaries of U.S.
trusts. To the extent that a domestic
partnership has not distributed a foreign
partner's distributive share of income
subject to withholding under section 1441,
1442, or 1443, or under chapter 4, it
should not include any tax liability on lines
1 through 60 for tax relating to the
partner's distributive share in the year the
partnership earns the income. For
distributive shares not actually distributed,
the partnership must include any tax
liability on lines 1 through 60 of the Form
1042 for the following year. Include the tax
liability on the line that represents the
earlier of the following dates.
• The date on which the Schedule K-1
(Form 1065) is sent or otherwise furnished
to the foreign partner.
• The due date for furnishing
Schedule K-1 (Form 1065) to the partner.
Include such tax liability for the period
that includes the date the tax was required
to be withheld. See Regulations section
1.1441-5(b)(2)(i)(A).
A domestic trust should report on lines
1 through 60 in the same manner as a
U.S. partnership to the extent that it is
required to distribute, but has not actually
distributed, a foreign beneficiary's share of
distributable net income subject to
withholding under section 1441, 1442, or
1443, or under chapter 4, before the date
(without extensions) on which the income
is required to be reported on Form
1042-S. See Regulations section
1.1441-5(b)(2)(ii).

Example. In 2020, USP, a U.S.
partnership, has foreign partners that are
individuals and for which it has obtained
valid documentation to establish their
foreign status. The withholding tax under
section 1441 relating to the distributive
shares of the foreign partners was $120.
USP made no distributions in 2020. On
the 2020 Form 1042, USP did not enter
any amount as tax liability on lines 1
through 60 because it did not distribute
any amounts.
USP made a distribution on February
11, 2021, that related to the 2020
distributive shares of the foreign partners.
USP withheld $100 at the time of the
distribution. USP sent the 2020 Schedules
K-1 (Form 1065) to its partners on April 2,
2021.
On the 2021 Form 1042, USP entered
$100 on line 7. This is the tax liability for
the period (February 8 through 15) during
which it made a distribution. USP entered
$20 on line 16. This is the tax liability for
the period (April 1 through 7) during which
it furnished the Schedules K-1 (Form
1065) to the partners.
Use Form 8804 to report

TIP withholding tax liability on the

partnership's income effectively
connected with a U.S. trade or business.
Withholding and reporting in a
subsequent year. Proposed regulations
issued on December 18, 2018 (83 FR
64757) would allow partnerships or trusts
that are permitted to withhold in a
subsequent year with respect to a foreign
partner's or beneficiary's share of income
for the prior year to designate the deposit
of the withholding as attributable to the
preceding year. In such a case, the
partnership or trust will be required to
report the associated amount and tax
withheld on Forms 1042 and 1042-S for
the preceding year. If a partnership
withholds on a foreign partner's share of
income after March 15 of the subsequent
year, the due date for filing the applicable
Form(s) 1042-S is September 15 of the
subsequent year. For example, if a
partnership withholds on April 1, 2021,
with respect to a foreign partner's share of
undistributed income for the 2020
calendar year, the partnership may
designate the deposit as made for 2020
and report the liability and tax withheld on
the 2020 Form 1042 and the 2020 Form
1042-S for the partner. The partnership or
trust must also ensure that its chapter 3
status code properly reflects its status as a
partnership or trust (including as a
Withholding Foreign Partnership (WP) or
Withholding Foreign Trust (WT)). The
associated liability should be reported on
line 59, with the share of income to the
partner or beneficiary reported on line 62,

-6-

and the amount withheld reported on
line 65b.
Note. Reporting in the preceding year is
also permitted when a partnership or trust
allocates a share of income allocable to a
partner or beneficiary attributable to the
preceding year that was not distributed
during that year provided that the
partnership meets the previously
referenced due date of September 15,
2021, for the applicable Form(s) 1042-S.
Note. A U.S. partnership or trust may rely
on the proposed regulations for 2020 in
lieu of the reporting described earlier, see
Foreign partners of U.S. partnerships and
foreign beneficiaries of U.S. trusts. The
proposed regulations may also be applied
by a foreign partnership or trust that itself
withholds as described above.
Note. For rules that apply for WPs and
WTs, see Rev. Proc. 2017-21, 2017-6
I.R.B. 791.
Corporate distributions. Do not include
on lines 1 through 60 any tax liability
caused by adjustments of underwithheld
tax on corporate distributions made in
calendar year 2020 if the following apply.
• The distributing corporation made a
reasonable estimate of accumulated and
current earnings and profits under
Regulations section 1.1441-3(c)(2)(ii)(A)
or 1.1474-6(c)(2)(ii).
• The distributing corporation or
intermediary immediately paid over the
underwithheld tax by March 15, 2021.
Instead, include these payments of
underwithheld tax on line 64a.
Excise tax on specified federal procurement payments. Section 5000C
imposes a 2% tax on any foreign person
that receives a specified federal
procurement payment. Include on lines 1
through 60 any withholding obligation
under section 5000C with respect to
specified federal procurement payments.
Report the amount on the line that
corresponds with the date the deposit was
due.
Specified federal procurement
payment. A specified federal
procurement payment means any
payment made pursuant to a contract with
the U.S. Government entered into after
January 1, 2011, for the provision of
goods, if such goods are manufactured or
produced in any country which is not a
party to an international procurement
agreement with the United States, or the
provision of services, if such services are
provided in any country which is not a
party to an international procurement
agreement with the United States.
QIs with no primary chapters 3 and 4
withholding responsibility. If you are a
QI that did not assume primary
Instructions for Form 1042 (2020)

withholding responsibility under both
chapters 3 and 4, enter the total amount of
the tax liability of U.S. withholding agent(s)
under both chapters 3 and 4 on line 59.
Report all other amounts on the line that
corresponds with the date the liability was
incurred.

Total Gross Amounts Reported

Note. Reporting on line 59 as described
above also applies to any other entity that
reports on Form 1042 to the extent such
entity claims a credit on line 67 for
amounts withheld by another withholding
agent (whether under chapter 3 or 4).

Be sure to reconcile amounts on
Form 1042 with amounts on
CAUTION Forms 1042-S (including Forms
1042-S filed electronically) to avoid
unnecessary correspondence with the
IRS.

Adjustments to withholding. If you
used procedures for adjusting
overwithholding or underwithholding, see
Adjustment for Overwithholding and
Adjustment for Underwithholding, later, for
instructions on reporting on lines 1 through
60.
Escrow procedure. A withholding agent
that withheld tax during calendar year
2020 and that was not required to deposit
with the IRS the amount of tax withheld
during calendar year 2020 pursuant to the
escrow procedure under Regulations
section 1.1471-2(a)(5)(ii) or 1.1441-3(d)
should not report such amount as a liability
on lines 1 through 60 or lines 64a through
64d and should not report such amount as
withheld on lines 63a through 63d. An
amount held in escrow is required to be
reported on the future calendar year return
for the year in which the withholding agent
is required to deposit the amount of tax
with the IRS.
Withholding after the time of payment.
In limited cases, the regulations under
chapters 3 and 4 allow you to withhold
after the time that a payment has been
made. In such a case, you should include
the tax liability for the period in which you
actually withheld with respect to the
payment. If you withheld in the year
following the calendar year in which the
payment was made, include the tax
liability relating to the payment on line 59
for the year you made the payment. For
example, if a deemed distribution under
section 305(c) is made on August 15,
2020, but you are not required to withhold
with respect to the deemed distribution
until a subsequent payment of interest is
made on February 15, 2021 (see
Proposed Regulations section 1.1441-2(d)
(4)), report the tax liability related to the
deemed distribution on line 59.
You should report on line 63c(2) the
amounts you withheld in the following
calendar year in which the payment was
made. You should also report deposits of
amounts withheld in the year following the
calendar year in which the payment was
made on line 65b.
Line 61. Enter the number of Forms
1042-S filed on paper and electronically.
Instructions for Form 1042 (2020)

Lines 62a through 62c. Enter the
amounts reported on all Forms 1042-S for
the calendar year (regardless of whether
the form was filed electronically or on
paper) and for all Forms 1000, Ownership
Certificate.

!

Line 62a. The amount on line 62a should
equal the sum of all amounts shown on
Form 1042-S, box 2, that are payments of
U.S. source FDAP income, less the sum of
all amounts that are U.S. source substitute
payments reported on line 62b.
Line 62b. The amount on:
• Line 62b(1) should equal the sum of all
amounts shown on Form 1042-S, box 2,
that are U.S. source substitute dividend
payments; and
• The amount shown on line 62b(2)
should equal all amounts shown on Form
1042-S, box 2, that are U.S. source
substitute payments other than substitute
dividend payments.
See Regulations section 1.1441-2(b)(4)
regarding substitute payments.
Line 62c. The amount on line 62c should
equal the sum of all amounts shown on
Forms 1042-S, box 2, and all amounts
shown as gross interest paid on Forms
1000.
Line 62d. Enter gross amounts
reportable on Forms 1000 and Forms
1042-S if different from the total gross
amounts actually reported on Forms 1000
and Forms 1042-S (as shown on line 62c).

Total Tax Reported as Withheld
or Paid
Lines 63a through 63e. Except as noted
directly below, enter for each line the
amounts reported for all Forms 1042-S
(regardless of whether the form was filed
electronically or on paper) and for all
Forms 1000.
Line 63a. The amounts reported on
line 63a should be the amounts actually
withheld by the withholding agent before
any applicable adjustments reported on
lines 63c(1) and 63c(2).
Line 63c(1). The amounts reported on
line 63c(1) should be amounts you repaid
to the beneficial owner or payee in the
year following the calendar year of
overwithholding pursuant to either the
reimbursement or set-off procedures (and
should also be reported as a reduction in
tax liability on line 59). See Adjustment for
Overwithholding, later. See Form 1042-S,
-7-

box 9, for reporting these corresponding
amounts.
Line 63c(2). The amounts reported on
line 63c(2) should be amounts that you
withheld in the year following the calendar
year of underwithholding from future
payments made to a beneficial owner or
from other property or additional
contributions of a beneficial owner that
you hold in custody or otherwise control.
See Adjustment for Underwithholding,
later. Also report on line 63c(2) any other
amounts that you withheld in the year
following the calendar year in which the
related payments were made (to the
extent permitted under an applicable
regulation section in chapter 3 or 4). See
Withholding after the time of payment,
earlier, for how to report the tax liability
related to such payments.
The total of the amounts reported on
lines 63a and 63c(2) should be the
amounts withheld by the withholding agent
reported on box 7a of the corresponding
Forms 1042-S.
The total of the amounts reported on
lines 63b(1) and 63b(2) should be the
amounts reported on box 8 of the
corresponding Forms 1042-S.
Line 63d. The amounts reported on
line 63d should be the amounts paid by
the withholding agent from its own funds
rather than through withholding from the
payment to the recipient. See Form
1042-S, box 11, for the corresponding
amounts.
Note. Amounts withheld and held in
escrow (and not deposited with the IRS)
pursuant to the escrow procedures under
Regulations section 1.1471-2(a)(5)(ii) or
1.1441-3(d) are not reported on lines 63a
through 63d until the year they are
deposited with the IRS. See the
instructions for Lines 1 through 60, earlier.
Therefore, amounts that are reported as
held in escrow (see box 7b of Form
1042-S) are not taken into account for
purposes of reconciling lines 63a through
63d with the corresponding Forms
1042-S.

Total Net Tax Liability
Line 64a. Include on line 64a any
adjustments to total net tax liability. For
example, report any adjustment to liability
when:
• A distributing corporation made a
reasonable estimate of accumulated and
current earnings and profits under
Regulations section 1.1441-3(c)(2)(ii)(A)
or 1.1474-6(c)(2)(ii), and
• A distributing corporation or
intermediary paid over any underwithheld
tax with respect to the distribution by
March 15, 2021.

Note. The amount reported on line 64a
must not be included in the Record of
Federal Tax Liability (lines 1 through 60).
Lines 64b and 64c. Enter the sum of the
amounts reported on the Record of
Federal Tax Liability (that is, the sum of
lines 5, 10, 15, 20, 25, 30, 35, 40, 45, 50,
55, and 60) that are attributable to liability
under chapter 3 (on line 64b) and
chapter 4 (on line 64c). The amounts
shown on lines 64b and 64c should not
include any amounts shown on lines 64a
and 64d. Do not make any other
adjustments to this line.
Line 64d. Enter on line 64d amounts
reported on the Record of Federal Tax
Liability that are attributable to liability for
specified federal procurement payments
under section 5000C.
Line 64e. The amount on line 64e should
equal the sum of lines 64a through 64d.

Reporting of Taxes Paid and
Overpayment or Balance Due
Line 65. Enter the total tax deposits you
made for the year (including amounts paid
with an extension of time to file). Enter
deposits of tax withheld during the
calendar year in which the related
payment was made on line 65a. Enter
deposits of tax withheld during the year
following the calendar year in which the
related payment was made (to the extent
permitted under an applicable regulation
section in chapter 3 or 4) on line 65b. See
Withholding and reporting in a subsequent
year, earlier.
Line 66. Enter any overpayment reported
on the 2019 Form 1042 that you are
applying as a credit on the 2020 Form
1042. See line 71.
Line 67. You are permitted to take a
credit for amounts withheld by other
withholding agents that relate to the total
net tax liability reported on lines 64b and
64c. For example, you are a QI and the
amount you entered on line 64b includes
amounts withheld by a U.S. withholding
agent under chapter 3 with respect to
payments made to you as an intermediary
on behalf of your account holders. You
may take a credit on line 67 for the
amounts that were withheld by the U.S.
withholding agent. The amount on line 67
should equal the sum of all Forms 1042-S,
box 8, that you file for the year.
Note. All withholding agents (including
QIs, WPs, WTs, NQIs, NWPs, and NWTs)
must verify entries on lines 67a and 67b
by attaching supporting Form(s) 1042-S or
1099 to verify the credit amounts claimed
for withholding by other withholding
agents. Failure to do so will result in the
denial of the refund or credit being
claimed. If you are a PTP or a nominee
withholding under section 1446, the tax

paid for a payee may only be claimed as a
credit by the payee.
QSL claiming a credit forward. If you
are a QSL or other withholding agent
claiming a credit forward of prior
withholding on substitute dividends on
line 67b as determined under Notice
2010-46, you should attach Form(s)
1042-S issued to you to support such
credits. If a credit is claimed with respect
to any U.S. source substitute dividends
paid to you from a withholding agent that
has not issued a Form 1042-S to you for
such payments, attach a supporting
statement to Form 1042 indicating the
following to support your credit.
• The withholding agent's name, address,
and EIN (if known).
• The amount of U.S. source substitute
dividends received from the withholding
agent.
• The amount of credit forward you
included on line 67b in connection with
these substitute dividends.
Lines 70a and 70b. Enter on line 70a
any overpayment attributable to payments
subject to withholding under chapters 3
and 4. Enter on line 70b any overpayment
attributable to payments subject to the
excise tax on specified federal
procurement payments. Do not include on
these lines any overpayment attributable
to amounts that were actually withheld
from the beneficial owner (unless such
amounts were repaid pursuant to the
reimbursement or set-off procedures).
Line 71. You may claim an overpayment
(the sum of lines 70a and 70b) as a refund
or a credit. Check the applicable box on
line 71 to show which one you are
claiming. If you claim a credit, it can
reduce your required deposits of withheld
tax for 2021. Note that if you repaid the
recipient overwithheld amounts after
year-end 2020 using the reimbursement or
set-off procedures, you are not able to
claim a refund for such an amount on the
2020 Form 1042. Instead, you must
indicate on line 71 that you are claiming a
credit to be applied to the 2021 calendar
year. See Adjustment for Overwithholding,
later.

Adjustment for
Overwithholding

What to do if you overwithheld tax
depends on when you discover the
overwithholding.
Overwithholding discovered by March
15 of the following calendar year. If
you discover that you overwithheld tax by
March 15 of the following calendar year,
you may use any undeposited amount of
tax to make any necessary adjustments
between you and the recipient of the
income before you make a deposit. Repay
the recipient and reduce the amount of
-8-

your total deposit. Report the reduced tax
liability on lines 1 through 60 for the
period(s) for which you repaid the
overwithheld tax.
If the undeposited amount is not
enough to make any adjustments, or if you
discover the overwithholding after the
entire amount of tax has been deposited,
you can use either the reimbursement or
the set-off procedure to adjust the
overwithholding.
If March 15 is a Saturday, Sunday,

TIP or legal holiday, the next business
actions.

day is the final date for these

Reimbursement procedure. Under
the reimbursement procedure, you repay
the beneficial owner or payee the amount
overwithheld. You use your own funds for
this repayment and may reimburse
yourself for an amount repaid by reducing
the amount of any subsequent deposit of
tax made during the calendar year or the
subsequent calendar year. You must
make the repayment by the earlier of:
• The date you actually file Form 1042-S
for the calendar year in which the amount
was overwithheld, or
• The due date for filing Form 1042-S for
the calendar year (generally, March 15 of
the year after the calendar year in which
the amount is overwithheld).
The reimbursement amount may not be
more than the amount you actually repaid.
The amount of the reduced tax liability for
amounts repaid to the beneficial owner or
payee during the calendar year must be
reflected on the line for the period you
reduced your liability. The amount
reported on line 59 for the calendar year
for which you overwithheld tax must reflect
the amount of the reduced tax liability for
amounts you repaid the beneficial owner
or payee in the subsequent calendar year,
if applicable. Amounts reported on
line 63c(1) should be limited to amounts
repaid to the beneficial owner or payee in
the subsequent calendar year (before the
earlier of the filing of the associated Form
1042-S or the due date for such form). On
line 71, indicate that you are claiming a
credit to be applied in the 2021 calendar
year for amounts you repay the beneficial
owner or payee in the subsequent
calendar year (note, you may not claim a
refund for such an amount).
For example, if you overwithhold tax in
2020, you must repay the beneficial owner
by March 15, 2021 (or the date on which
you filed the associated Form 1042-S with
the IRS, if earlier). You must keep a
receipt showing the date and amount of
the repayment and provide a copy of the
receipt to the beneficial owner if you
repaid the beneficial owner. If you repaid
the beneficial owner after year-end 2020,
you must report the repayment on
Instructions for Form 1042 (2020)

line 63c(1). You must reduce your federal
tax liability on line 59 of your 2020 Form
1042 by the amount of the repayment and
claim a credit on line 71 for the difference
between your tax liability and your
deposits with the IRS. You may reimburse
yourself by reducing any subsequent
deposits you make before the end of
calendar year 2021 (the year after the
calendar year in which the amount was
overwithheld).
Set-off procedure. Under the set-off
procedure, you repay the beneficial owner
or payee the amount overwithheld by
reducing the amount you would have been
required to withhold on later payments you
make to that person but only if made
before the earlier of:
• The date you actually file Form 1042-S
for the calendar year in which the amount
was overwithheld, or
• The due date for filing Form 1042-S for
the calendar year (generally, March 15 of
the year after the calendar year in which
the amount is overwithheld).
The reductions that you applied
pursuant to the set-off procedure during
the calendar year must be reflected on the
line for the period you reduced your
liability. The amount reported on line 59 for
the calendar year for which you
overwithheld tax must reflect reductions
that you applied pursuant to the set-off
procedure during the subsequent calendar
year, if applicable. Amounts reported on
line 63c(1) should be limited to amounts
repaid to the beneficial owner or payee (by
reducing the withholding on a later
payment) in the subsequent calendar year
(before the earlier of the filing of the
associated Form 1042-S or the due date
for such form). On line 71, indicate that
you are claiming a credit to be applied to
the 2021 calendar year for amounts you
set off in the subsequent calendar year
(note, you may not claim a refund for such
an amount).
For 2020, a withholding agent may rely
on proposed regulations (83 FR 64757),
which allow adjustments to
overwithholding using the reimbursement
or set-off procedures until the extended
due date for filing Form 1042-S (unless a
Form 1042-S has already been filed with
the IRS or furnished to the recipient). A
withholding agent may also use the
extended due date for filing Form 1042 to
claim a credit for any adjustments to
overwithholding.
Overwithholding discovered at a later
date. If you discover after March 15 of the
following calendar year that you
overwithheld tax for the prior year, do not
adjust the amount of tax liability reported
on Form 1042 or on any deposit or
payment for that prior year. Do not repay
the beneficial owner or payee the amount
overwithheld unless you are a QI, WP,
Instructions for Form 1042 (2020)

WT, participating FFI, or reporting Model 1
FFI making a claim for a collective refund
under your respective agreement with the
IRS. See Regulations section 1.1471-1(b)
(114) for the definition of a reporting Model
1 FFI.
In this situation, the recipient will have
to file a U.S. income tax return (Form
1040-NR or Form 1120-F) or, if a tax
return has already been filed, a claim for
refund (Form 1040-X or amended Form
1120-F) to recover the amount
overwithheld.

Adjustment for
Underwithholding

Under the procedures for adjusting
underwithholding (see Regulations
sections 1.1461-2(b) and 1.1474-2(b)),
you may withhold from future payments
made to a beneficial owner the tax that
should have been withheld, or satisfy the
tax from property or additional
contributions of the beneficial owner that
you hold in custody or otherwise control,
before the date (without extensions) that
the Form 1042 is required to be filed. You
should report the liability related to such
withholding on lines 1 through 60 for the
period during the year in which you
adjusted underwithholding by withholding
additional tax. If you adjust
underwithholding by withholding in the
year following the calendar year of
underwithholding, you should report the
increased liability on line 59 for the year in
which the underwithholding occurred.
Amounts reported on line 63c(2) should
be limited to amounts withheld in the year
following the calendar year of
underwithholding (before the date that the
Form 1042 is required to be filed without
extensions). You should report deposits of
amounts withheld in the year following the
calendar year of underwithholding
pursuant to these procedures on line 65b.
See Deposits made during subsequent
year, earlier, for how to designate such
deposits as attributable to the year of
underwithholding.

Section 2. Reconciliation
of U.S. Source FDAP
Income

This section is used by the withholding
agent to reconcile the amount of U.S.
source FDAP income reportable under
chapter 4 and paid by the withholding
agent during the calendar year with the
total amount of U.S. source FDAP income
reported on all Forms 1042-S filed by the
withholding agent for the calendar year
(including amounts reported under both
chapter 3 and chapter 4). You must
complete this section even if you did not
make any payments subject to chapter 4
withholding during the calendar year. This
section also allows reporting of the
-9-

amounts of U.S. source FDAP income for
which chapter 4 withholding is required
and reporting of the amounts for which
withholding is not required according to
the exemption from chapter 4 withholding
applicable to each such amount.
Note. The amounts of U.S. source FDAP
income reportable for chapter 4 are:
• Payments of U.S. source FDAP income
for which withholding under chapter 4 was
applied to the payment, plus
• Payments of U.S. source FDAP income
for which withholding under chapter 4 was
not required but that are subject to
reporting for chapter 3 purposes on Forms
1042-S.
Line 1. Enter the amounts of U.S. source
FDAP income required to be withheld
upon under chapter 4, including amounts
withheld upon but for which no deposit
has been made under an escrow
procedure.
Line 2. Enter amounts of U.S. source
FDAP income not required to be withheld
upon under chapter 4 on lines 2a through
2d according to the exception to
withholding that applied to each payment
reportable on Form 1042-S. The amount
on line 2e should equal the sum of lines 2a
through 2d.
Line 2a. Enter the amounts of U.S.
source FDAP income that are
withholdable payments, but for which the
withholding agent has obtained
documentation that establishes a
chapter 4 status that does not require
withholding under chapter 4 (for example,
participating FFI). The amount reported on
this line should generally equal the
aggregate amount reported in box 2 on all
of the Forms 1042-S you filed for the
calendar year for which exemption code
15, Payee not subject to chapter 4
withholding, was included in box 4a.
Line 2b. Enter the amounts of U.S.
source FDAP income that are not
withholdable payments because they are
nonfinancial type payments (for example,
royalties, services, rents). The amount
reported on this line should generally
equal the aggregate amount reported in
box 2 on all of the Forms 1042-S you filed
for the calendar year for which the
exemption code 16, Excluded nonfinancial
payment, was included in box 4a.
Line 2c. Enter the amounts of U.S.
source FDAP income that are not
withholdable payments because they are
payments related to grandfathered
obligations (for example, obligations
outstanding on July 1, 2014). See
Regulations section 1.1471-2(b). The
amount reported on this line should
generally equal the aggregate amount
reported in box 2 on all of the

Forms 1042-S you filed for the calendar
year for which the exemption code 13,
Grandfathered payment, was included in
box 4a.
Line 2d. Enter the amounts of U.S.
source FDAP income that are not
withholdable payments because they are
payments of effectively connected
income. The amount reported on this line
should generally equal the aggregate
amount reported in box 2 on all of the
Forms 1042-S you filed for the calendar
year for which the exemption code 14,
Effectively connected income, was
included in box 4a.
Line 2e. Enter the sum of all amounts
of U.S. source FDAP income required to
be reported on Form 1042, but that are not
required to be withheld upon under
chapter 4 (sum of lines 2a through 2d).
Line 4. Enter the sum of all amounts
shown on Form 1042-S, box 2, that are
payments of U.S. source FDAP income
(including amounts reported under both
chapter 3 and chapter 4). The amount on
line 4 should equal the total gross
amounts reported on line 62c.
Line 5. The amount on line 5 should be
the total reported on line 4 (total amount
reported on all Forms 1042-S) less the
total reported on line 3 (total U.S. source
FDAP reportable under chapter 4).
Line 6. If the amount reported on line 5 is
other than zero, use this line to provide an
explanation for the variance. If additional
space is needed, attach a sheet to Form
1042 explaining the difference noted on
line 5.

Section 3. Potential
Section 871(m)
Transactions

Check the box if you are a withholding
agent that makes any payment under a
potential section 871(m) transaction
during the year, including a notional
principal contract or other derivative
contract that references, in whole or in
part, a U.S. stock or underlying security.
See Regulations section 1.871-15(a)(12)
for the definition of a potential section
871(m) transaction.

Section 4. Dividend
Equivalent Payments by a
Qualified Derivatives
Dealer (QDD)

If a QI (whether the home office or any
branch) was a QDD during the tax year,
check the box, enter the regular EIN (if
any) of the QDD (not the QI-EIN) in the
field provided, and attach a Schedule Q
(Form 1042) for each QDD. You must
complete and attach Schedule Q (Form

1042) even if the QDD has zero tax
liability.
Note. In addition to filing a separate
Schedule Q (Form 1042) for each QDD, if
the taxpayer has a tax year other than the
calendar year, the taxpayer must file
separate Schedules Q (Form 1042) — one
for the portion of the calendar year in the
first tax year and a second one for the
portion in the second tax year.

Third Party Designee

If you want to allow any individual,
corporation, firm, organization, or
partnership to discuss your 2020 Form
1042 with the IRS, check the “Yes” box in
the Third Party Designee section of the
return. Also, enter the designee's name,
phone number, and any five digits the
designee chooses as his or her personal
identification number (PIN). The
authorization applies only to the tax form
upon which it appears.
If you check the “Yes” box, you are
authorizing the IRS to call the designee to
answer any questions relating to the
information reported on your tax return.
You are also authorizing the designee to:
• Exchange information concerning your
tax return with the IRS; and
• Request and receive written tax return
information relating to your tax return,
including copies of specific notices,
correspondence, and account transcripts.
You are not authorizing the designee to
receive any refund check, bind you to
anything (including additional tax liability),
or otherwise represent you before the IRS.
If you want to expand the designee’s
authorization, see Pub. 947, Practice
Before the IRS and Power of Attorney.
The authorization automatically expires
1 year from the due date (without any
extensions) for filing your 2020 Form
1042. If you or your designee desires to
terminate the authorization, a written
statement conveying your wish to revoke
the authorization should be submitted to
the IRS service center where the return
was processed.

Amended Return

If you have to make changes to your Form
1042 after you submit it, file an amended
Form 1042. Use a Form 1042 for the year
you are amending. Check the “Amended
Return” box at the top of the form. You
must complete the entire form, including
all filing information for the calendar year,
and sign the return. Attach a statement
explaining why you are filing an amended
return (for example, you are filing because
the tax liability for May was incorrectly
reported due to a mathematical error).
If you are also amending Form(s)
1042-S, see Amended Return in the Form
1042-S instructions.
-10-

Do not amend Form 1042 to recover
taxes overwithheld in the prior year. For
more information, see Adjustment for
Overwithholding, earlier.
Privacy Act and Paperwork Reduction
Act Notice. We ask for the information on
this form to carry out the Internal Revenue
laws of the United States. Sections 1441,
1442, 1446 (for PTPs), and 1471–1474
require withholding agents to report and
pay over to the IRS taxes withheld from
certain U.S. source income of foreign
persons. Form 1042 is used to report the
amount of withholding that must be paid
over. Form 1042-S is used to report the
amount of income and withholding to the
payee. Section 6109 requires you to
provide your identifying number on the
return. Routine uses of this information
include giving it to the Department of
Justice for civil and criminal litigation, and
to cities, states, the District of Columbia,
and U.S. commonwealths and
possessions for use in administering their
tax laws. We may also disclose this
information to other countries under a tax
treaty or tax information exchange
agreement, to federal and state agencies
to enforce federal nontax criminal laws, or
to federal law enforcement and
intelligence agencies to combat terrorism.
If you fail to provide this information in a
timely manner, you may be liable for
penalties.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records relating
to a form or its instructions must be
retained as long as their contents may
become material in the administration of
any Internal Revenue law. Generally, tax
returns and return information are
confidential, as required by section 6103.
The time needed to complete and file
this form will vary depending on individual
circumstances. The estimated burden for
business taxpayers filing this form is
approved under OMB control number
1545-0123. The estimated burden for all
other taxpayers who file this form is:
Recordkeeping, 10 hr., 31 min.;
Learning about the law or the form, 2
hr., 25 min.; Preparing the form, 4 hr., 34
min.; and Copying, assembling, and
sending the form to the IRS, 32 min.
If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form simpler,
we would be happy to hear from you. You
can send us comments from IRS.gov/
FormComments. Or you can write to the
Internal Revenue Service, Tax Forms and
Publications, 1111 Constitution Ave. NW,
IR-6526, Washington, DC 20224. Do not
Instructions for Form 1042 (2020)

send the form to this address. Instead, see
Where and When To File, earlier.

Instructions for Form 1042 (2020)

-11-

Index
A
Adjustment for
Overwithholding 8
Overwithholding discovered
at a later date 9
Overwithholding discovered
by March 15 of the
following calendar
year 8
Reimbursement
procedure 8
Set-off procedure 9
Adjustment for
Underwithholding 9
Adjustments to
overwithholding 1
Adjustments to withholding 7
Amended Return 10
Avoid Common Errors 5
C
Certain distributions subject to
section 1445 withholding
tax 2
Chapter 3 and 4 status
codes 2
Corporate distributions 6
D
Deposit Requirements 3
Depositing on time 4
Deposits made during
subsequent year 4
Electronic deposit
requirement 4
Escrow procedure 4
Same-day wire payment
option 4

Qualified intermediary 2
Qualified securities
lender 3
Recalcitrant account
holder 3
Registered
deemed-compliant
FFI 3
Withholding foreign
partnership or
withholding foreign
trust 2

E
Election To Withhold Under
Section 3406 3
Escrow procedure 2, 4, 7
Excise tax on specified federal
procurement payments 6
F
Foreign partners of U.S.
partnerships and foreign
beneficiaries of U.S.
trusts 6
I
Income Tax Withholding on
Wages, Pensions,
Annuities, and Certain
Other Deferred Income 3
Interest and Penalties 4
Interest 4
Late filing of Form 1042 4
Late payment of tax 4
Other penalties 4
Intermediary 2
Foreign financial
institution 3
Nonparticipating FFI 3
Nonqualified
intermediary 2
Nonwithholding foreign
partnership 2
Nonwithholding foreign
trust 3
Participating FFI 3
Passive non-financial
foreign entity (NFFE) 3
Qualified derivatives dealer
(QDD) 3

P
Potential 871(m)
transactions 1
Privacy Act and Paperwork
Reduction Act Notice 10
Publicly traded partnerships
(section 1446 withholding
tax) 2
Q
Qualified derivatives dealers
(QDDs) 1
Qualified intermediaries with
no primary chapters 3 and 4
withholding responsibility 6
R
Reporting of Taxes Paid and
Overpayment or Balance
Due 8
QSL claiming a credit
forward 8
S
Section 1. Record of Federal
Tax Liability 5

-12-

Section 2. Reconciliation of
U.S. Source FDAP
Income 9
Section 3. Potential Section
871(m) Transactions 10
Section 4. Dividend Equivalent
Payments by a Qualified
Derivatives Dealer
(QDD) 10
Specific Instructions 5
Address 5
Chapter 3 and 4 status
codes of withholding
agent 5
Employer identification
number (EIN) 5
Rounding off to whole
dollars 5
Specified federal procurement
payment 6
T
Third Party Designee 10
Total Gross Amounts
Reported 7
Total Net Tax Liability 7
Total Tax Reported as
Withheld or Paid 7
W
Where and When To File 3
Extension of time to file 3
Who Must File 2
Withholding after the time of
payment 7
Withholding Agent 2
Liability for tax 2