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Instructions for Form 1042, Annual Withholding Tax Return for

Instructions for Form 1042, Annual Withholding Tax Return for-2025

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The document provides detailed instructions for completing Form 1042, the Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, for the tax year 2024. It outlines the requirements for withholding agents, including who must file, electronic filing exemptions, and updates on regulations affecting foreign persons' income taxation. Key topics include tax withholding procedures under chapters 3 and 4 of the Internal Revenue Code, adjustments for overwithholding and underwithholding, and specific reporting requirements related to various types of income. The document also includes information on penalties for late filing or payment and guidance on how to reconcile reported amounts.

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What is income not effectively connected to?

Non-Effectively Connected Income: Income that is not effectively connected with a US trade or business is classified as FDAP income (fixed, determinable, annual or periodical.) FDAP income that is considered to be US sourced income: subject to 30% withholding or withholding at a lower treaty rate.

What is the IRS rule 1042?

The IRS rules that if an individual who deferred gain recognition under section 1042 on a stock sale to an ESOP transfers to a partnership the property he purchased with the proceeds, the transfer is a disposition resulting in recapture of the deferred gain.

What income is exempt from withholding?

You can claim exemption from withholding only if both the following situations apply: For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability. For the current year, you expect a refund of all federal income tax withheld because you expect to have no liability.

What income is reported on 1042?

Use Form 1042 to report the following: The tax withheld under chapter 3 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.

What types of income are subject to withholding?

What pay is subject to withholding Your regular pay, commissions and vacation pay. Reimbursements and other expense allowances paid under a non-accountable plan. Pensions, bonuses, commissions, gambling winnings and certain other income.

What income is subject to 1042 withholding?

Amounts subject to reporting on Form 1042-S are amounts paid to foreign persons even if the withholding agent did not withhold tax because the income was exempt from tax under a U.S. tax treaty or the IRC, including the exemption for income that is effectively connected with the conduct of a trade or business in the

Who needs to file the IRS Form 1042?

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.

Instructions for Form 1042, Annual Withholding Tax Return for-2025

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