Form 1042 Electronic Filing Is Required by March 16th - Here's What You Need to Do Now

Since 2024 (for tax year 2023), the IRS requires the Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Person, to be electronically filed. Over the past two compliance seasons the IRS has provided an administrative waiver allowing for withholding agents to continue to file the return by paper. With more providers available to assist with electronic filing of the form, practitioners should plan for the electronic filing requirement to be enforced this year, with no administrative waiver expected.

The Form 1042 electronic filing requires the taxpayer to be able to file through the Modernized e-Filing (MeF) system. This is a separate and distinct process from Form 1042-S filings which can be completed through Filing Information Returns Electronically (FIRE) or the newer system called, Information Returns Intake System (IRIS). Therefore, a taxpayer needs to either have their own developed software process for MeF or utilize a third-party provider with software. 

Immediate Action Steps for AP/AR TeamsIf you are not currently ready to electronically file Form 1042 by March 16^th, consider the following:

• Identify a vendor that can assist with Form 1042 electronic filing – The IRS provides a list of companies that have passed the IRS Assurance Testing System requirements for 1042 MeF filing - 1042 Modernized e-File (MeF) providers | Internal Revenue Service. In addition, note that the IRS list is updated on a rolling basis and may not reflect all available providers, so additional research is recommended.
• Request a hardship waiver – A withholding agent may request a hardship waiver from the electronic filing requirement for Form 1042. The request must be submitted prior to March 15 by fax, delivery service, or standard mail. The waiver request must include:
• A description of the steps the withholding agent has taken to attempt to timely file the return;
  1. The specific steps the withholding agent will take to comply with the electronic filing requirement in the future; and
  2. A detailed explanation of the undue hardship currently preventing electronic filing of Form 1042, including an explanation of the incremental costs above paper filing.

Please see: Requesting a waiver from the electronic filing requirement of Form 1042 

• Request an Extension  – The Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, can be filed with the IRS by March 16^th to request a 6-month extension for the Form 1042 filing only. While this will not remove the requirement to electronically file, it will give more time to consider your options.

If an extension is requested, please remember the following:

• An extension provides the availability to file a return later than the due date but the payment of any tax owed will still be required by the March 16^th deadline.
• USPS postmarks reflect facility processing dates, not drop-off dates. Mail extensions early or request a manual postmark to avoid a late filing determination.The Form 1042-S requires a different extension process for IRS filing and for furnishing returns to recipients.

About the Author Colin Brien is an attorney with an LL.M. in Taxation and over 20 years of experience in information reporting and withholding. He is the founder of InfoReporting Solutions, where he advises nonfinancial businesses on withholding and compliance requirements.