Form 1042-S - Non Resident Alien (NRA) Withholding - IRS Pub 515

For the Taxation and withholding of taxes for Resident Aliens or US Citizens, Form 1042-S should not be issued.

Please read Am I a Resident Alien or Non Resident Alien for Tax purposes?

Form 1042-S may be issued to certain Non Resident Aliens, based on withholding on certain types of Income.

Payment made to a Non Resident Alien - NRA Withholding - Form 1042-S :

For the discussion of the article, we will focus only on payment made to a Non Resident Alien (NRA) , and the amount requirement to be withheld by the withholding agent or payor called NRA Withholding.

The determination to withhold taxes on a Non Resident Alien at graduated rates like a US Citizen, or at 30% or less, is based on if the income is;

1. Effectively Connected Income - taxes withheld at graduated rates like a US Citizen

Issue Form W-2 or Form 1099 with Documentation W-9

2. Not Effectively Connected Income - Fixed or Determinable Income (FDI) - 30% Withholding unless reduced by a Tax Treaty.

Issue Form 1042-S with Documentation Form W-8BEN and other additional documentation as deemed necessary.

Effectively Connected Income :

If the Non Resident Alien, works as an employee , the withholding agent can report the wage or salary income in Form W-2 or Form 1099,after getting documentation Form W-9 from the employee,
and Form 1042-S need not be issued.

Taxes on the Wage or Salary Income received by the Non Resident Alien is withheld by the Withholding agent, at graduated rates just like a US Citizen.

Not Effectively Connected Income - Fixed or Determinable Income (FDI) - 30% Withholding unless reduced by a Tax Treaty

Form 1042-S need to be issued when a Not Effectively Connected Income is made to a Non Resident Alien.

Issue Form 1042-S with Documentation like Form W-8BEN and other documentation as deemed necessary.

30% of the gross income needs to be withheld by the Withholding agent or payor , unless reduced by a Tax treaty.

Documentation:

Documentation like Form W-8BEN and other documentation as deemed necessary, needs to be collected by the withholding agent from the Non Resident Alien before issuing Form 1042-S , to confirm that;

1. The Non Resident Alien is a foreign national

2. Redundant withholding of taxes is not made in Form 1099 , for the taxes already withheld in Form 1042-S

3. Reduced withholding based on a tax treaty.

Not Effectively Connected Income - FDI Income types that require 30% withholding or less based on a Tax Treaty.

This section will discuss a few common income types received by a Non Resident Alien, the withholding rate on gross income and the documentation to be received by the withholding agent
from the Non Resident Alien, before issuing Form 1042-S.

However these withholding rates, may be reduced, based on the Tax treaty between the Foreign country and the United States.

Type of Income NRA Withholding Rate Documentation

Taxable part of US Scholarship paid to certain Visa Types (F, J, M, Q),
towards a degree in the United States.

Only the Non Tuition Income like room, board and
the travel portion of the scholarship are taxed.
14 %
Form W-8BEN, Form 8233 (Claim Exemption based on Tax Treaty)

Independent Personal Services
(Non Resident Aliens who are Self-Employed)
30 %
Form W-8BEN, Form 8233 (Claim Exemption based on Tax Treaty)

All other Income Types Subject to withholding like;
(Interests, Capital Gains, Dividends , Royalties, Gambling Income)
30 %
Form W-8BEN


The general 30 % withholding rate can be reduced, depending upon a Tax Treaty.

Example:

Article 20 of China - US Tax Treaty allows exemption from Tax on Scholarship Income by a Chinese Student

Article 21(2) of India - US Tax Treaty allows for additional exemption of Spouse on the income earned by an Indian Student.

Form 1042-S - Income, Recipient and Exemption Codes

Income Types and Income Codes

Recipient Types and Recipient Codes

Exemption TYpes and Exemption Codes

Countries and Country Codes

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