Form 1042 is used to report (to the IRS) withholdings of US source income paid to foreign persons. Form 1042-S is used to report (to the payee and the IRS) amounts paid to foreign persons from US sources, that are subject to withholding even if no amount is deducted and withheld from the payment.
Income payments made to non US persons/entities (foreign persons) from US sources must be reduced by the appropriate withholding amount of US tax and remitted to the IRS. The withholding rate on such payments is 30% which can be reduced by exceptions outlined in the statute or by a tax treaty between the US and the payee’s country of residence. Payees who make a request for treaty benefits must present a certificate which includes the payee’s US tax identification number. Amounts paid to Foreign Persons are subject to withholding.
Foreign persons who are nonresidents are subject to US tax on income from or connected to the United States. No foreign person/entity is allowed to begin work or provide services at NCA & TSU prior to receiving the proper authorization.
See Foreign National Employment on the HR website.
For withholdings related to scholarships and awards, see Withholding Federal Income Tax on Scholarships, Fellowships and Grants Paid to Nonresident Aliens.
A 1099-MISC form is used to report miscellaneous income (paid to U.S. vendors) to the IRS. This form is used for:
- Income earned by an independent contractor (not an employee)
- Fees, commissions, rents, or royalties paid
- Payment for prizes, awards, or legal services
- Medical and health care payments
1099-MISC Federal Income Tax Withheld
U.S. vendors who have not furnished their tax identification number (TIN) on a W-9 form are subject to withholding at a 28% rate on payments required to be reported. Any federal income tax withheld and reported on a 1099-MISC must be reported on form 945.
A U.S. vendor is defined as a U.S. person for federal tax purposes, which is an individual who is a U.S. citizen or U.S. resident alien, a partnership, corporation, company, or association created or organized in the United States or under the laws of the United States, an estate (other than a foreign estate), or a domestic trust.
A non U.S. vendor must complete a W-8 form. See Amounts Paid to Foreign Persons Subject to Withholding.