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Before You File Your Form 1042-S, Make Sure It Is "Unique": What You Should Know About the Changes t Before You File Your Form 1042-S, Make Sure It Is "Unique": What You Should Know About the Changes t

Before You File Your Form 1042-S, Make Sure It Is "Unique": What You Should Know About the Changes to Form 1042-S

Earlier this year, the Internal Revenue Service ("IRS") issued a revised Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding for 2017 payments. Retirement Systems should use the Form 1042-S to report payments made to non-resident alien recipients under Chapter 3 of the Internal Revenue Code ("IRC") related to the withholding of payments to non-resident individuals or entities. Although generally less applicable to Retirement Systems, withholding agents should also use the Form 1042-S to report withholding under IRC Chapter 4 related to the Foreign Account Tax Compliance Act ("FATCA"). Importantly, for those Retirement Systems that have programmed their computer systems for the issuance of Form 1042-S, programming changes may be needed prior to the March 15, 2018 due date. We have highlighted the key changes below.

Unique Form Identifier

Of notable interest is the new requirement that each Form 1042-S have a unique 10 numeric digit identifier. Specifically, the IRS created a new field on the 2017 Form that requires withholding agents to assign a Unique Form Identifier ("UFI") to each original 1042-S Form that is filed. The mandatory UFI must be created by the Retirement System and cannot be the recipient's U.S. or foreign tax identification number ("TIN"). The UFI must be unique to each original Form 1042-S for the current year (e.g. for the 2017 Form 1042-S). The UFI can be repeated on a new original form in a subsequent year.

Amendment Number

In addition, new to the 2017 Form 1042-S, the Retirement Systems will be required to indicate the amendment number on all amended Form 1042-S. Furthermore, along with checking the "Amended" box on the Form 1042-S and labeling the "Amendment No.," the same UFI used on an original form also should be used on any subsequent amendments to the form.

Payer Status Codes

New fields have been added to the 2017 Form 1042-S to indicate the IRC Chapter 3 and Chapter 4 payer status codes. The Retirement System should utilize Box 12b to report the payer status code for Chapter 3 withholding. In addition, Box 12c must be completed, even if the Retirement System does not withhold any amounts under Chapter 4.

Other Notable Requirements on the Form 1042-S
  • Separate boxes for Chapter 3 and Chapter 4 reporting. Box 3a and Box 3b should be used to report the exemption code and tax rate, respectively. If, for example, the Retirement System applied the thirty percent (30%) presumptive withholding to the payment, the Box 3a exemption code should be "00." Code "04" will be used to indicate an exemption under a tax treaty. Box 4a and Box 4b should be completed even if the Retirement System did not withhold under Chapter 4. If the Retirement System did not withhold any amounts under IRC Chapter 4, Box 4a would reflect Code "15" for "Payee not subject to chapter 4 withholding" and Box 4b, the tax rate, would indicate "00."
  • Withholding Allowance and Net Income. Box 5, "Withholding Allowance," and Box 6, "Net Income," typically will be left blank for pension payments. If the Retirement System made payments for "independent personal services" (Income Code 17) or "dependent personal services" (Income Code 18), then Box 5 and Box 6 should be completed. For example, Qualified Excess Benefit Arrangement ("QEBA") payments, in accordance with IRC Section 415(m), will be considered compensation for "dependent personal services."
  • Recipient Status Codes. Box 13f, Chapter 3 status code, and Box 13g, Chapter 4 status code, should be used to provide the recipient's status code. Unlike the payer status codes in Boxes 12b and 12c, Box 13g, the Chapter 4 status code, should not be completed unless the Retirement System withholds under Chapter 4. As it relates to payments by Retirement Systems, in many instances, status code "16," payment to an individual, will be utilized in Box 13f.
The IRS' complete instructions regarding the Form 1042-S can be found here. As a reminder, Retirement Systems may not use the 2016 Form or any other prior version of the 1042-S to report payments in 2017.

For more information on the changes to Form 1042-S and how they may affect your retirement plan, please contact Rob Gauss, Audra Ferguson-Allen, Lisa Harrison, or the Ice Miller Employee Benefits attorney with whom you work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.  
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