1042-S Reporting and Other International Tax Issues

1
1042-S Reporting and Other International Tax
Issues

• FOCUS Conference, Virginia Beach, VA
• November 17-18, 2005
• Terri Crowl,
• International Tax Coordinator
• Cheryl Sims, Payroll Director
• George Mason University
• Fairfax, VA

2
1042-S and 1042 Issues

• What to report
• What not to report
• Ensuring complete and accurate data
• A/P issues
• Payroll issues
• Liabilities and deposits
• Under withholding and grossing up
• Missing TINs

3
Other Issues and Updates

• New NRA wage withholding Notice 2005-76
  (http//www.irs.gov/pub/irs-drop/n-05-76.pdf)
• New NRA filing requirements Notice 2005-77
  (http//www.irs.gov/pub/irs-drop/n-05-77.pdf)
• Acceptance agent program status
• OTBR phone forum
• QA/Discussion

4
What to Reporton Form 1042-S

• Nonqualified scholarships/fellowships
• Prizes/awards
• Self-employment income/honoraria
• Royalties
• Treaty-exempt wages
• Performers fees (artists/athletes)

5
What to Reporton Form 1042-S cont.

• Other income (research subject fees, etc.)
• Basically all other U.S.-source income paid to
  an NRA except non-treaty-exempt wages (report on
  W-2)
• Dont forget treaty-exempt income paid to
  residents for tax purposes!
• See 1042-S instructions for complete information

6
What Not to Report on Form 1042-S

• Non-treaty-exempt wage income (W-2)
• Foreign-source income (services performed by an
  NRA abroad, etc.) unless using exemption code 3
• Qualified scholarships (excludable under Section
  117)
• Payments for tangible products
• Bank interest (except in excess of 10 paid to
  Canadian residents)

7
Ensuring Complete and Accurate Data

• Use multiple checks and balances
• Cross-check between different systems
• Customize reports from all reporting systems
• Issue recipient copies as early as possible
• Investigate and resolve discrepancies
• File with IRS as late as possible to allow for
  changes

8
A/P Issues

• Year-end payments setting cutoffs
• Workflow
• Controls

9
Payroll Issues

• Balancing 1042-S and W-2 information
• Banner Setup, Interface and Other Issues
• W-2 printing and 1042-S production

10
Liabilities and Deposits

• Form 1042
• When to book liabilities
• When to make deposits
• How to make deposits (EFTPS)
• Liabilities and deposits should balance

11
Under Withholding and Grossing Up

• Will have to pay under withholding if treaty
  benefits granted, but no TIN on 1042-S
• If possible, keep a pad so if you miss a
  deposit, the over depositing will cover you
• If still under withheld, and cant collect tax
  from payee, can gross up as follows If tax rate
  is 14, divide under withheld amount by .86 to
  get grossed-up rate. Multiply by .14 to get
  amount due to IRS with 1042 submission. If tax
  rate
• is 30, divide by .70 and multiply by .30

12
Missing TINS

• Increasing problem due to new W-7 rules
• IRS should not penalize as long as no treaty
  exemption allowed
• Submit list of TIN-less individuals and reason
  for no TIN to IRS with 1042 per T. Reg.
  301.6109-1(c)

13
Other Issues and Updates

• New NRA wage withholding Notice 2005-76
  (http//www.irs.gov/pub/irs-drop/n-05-76.pdf)
• New NRA filing requirements Notice 2005-77
  (http//www.irs.gov/pub/irs-drop/n-05-77.pdf)
• Acceptance agent program status
• OTBR phone forum
• Questions - Discussion