Reconciling Form 1042 (the annual withholding tax return) with your Form 1042-S filings is crucial to ensure consistency, avoid IRS notices, and demonstrate full compliance with Chapter 3 and Chapter 4 withholding requirements.
Here’s a step-by-step guide to help you reconcile Form 1042 with Forms 1042-S:
Step-by-Step Reconciliation Process
Step 1: Understand the Role of Each Form
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Form 1042-S reports U.S.-source income paid to foreign persons and the taxes withheld.
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Form 1042 summarizes all U.S.-source FDAP (Fixed, Determinable, Annual, Periodic) income paid to nonresidents, the taxes withheld, and amounts reported on all 1042-S forms.
Step 2: Aggregate Data From Your 1042-S Filings
For each 1042-S filed, extract the following:
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Gross income amount (Box 2)
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Withholding amount (Box 7 or 10)
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Chapter indicator (Chapter 3 or 4)
Total these values by:
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Income code
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Withholding rate
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Recipient type (individual, entity)
Step 3: Match Totals on Form 1042
| Form 1042 Line | Where to Pull From 1042-S |
|---|---|
| Line 1–60 (Tax Liability Schedule) | Totals of withheld amounts from 1042-S Box 7 (Ch. 4) and Box 10 (Ch. 3), by payment date |
| Line 63a – Total income reported | Total gross income (Box 2) from all 1042-S forms |
| Line 64 – Total tax withheld | Total taxes withheld from 1042-S Boxes 7 + 10 |
| Line 65 – Adjustments | Manual corrections (if any) not reflected in 1042-S forms |
Step 4: Confirm Key Reconciliation Points
Make sure these totals match:
| Check This | Should Match |
|---|---|
| Total number of 1042-S forms filed | Matches Line 63b on Form 1042 |
| Total gross income reported | Matches Line 63a on Form 1042 |
| Total tax withheld | Matches Line 64 on Form 1042 |
| Tax liability per month (Sch. of Liability) | Matches total tax by payment date on 1042-S |
Form 1042 must accurately summarize all Form 1042-S filings. Any discrepancies may trigger an IRS notice of underreporting, penalties, or even an audit. Reconciling them before filing ensures you stay compliant and reduce risk.