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1042-S Reporting and Other International Tax Issues

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. What to report What not to report

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1042-S Reporting and Other International Tax Issues

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  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. 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 1042-S and 1042 Issues

  3. 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 Q&A/Discussion Other Issues and Updates

  4. Nonqualified scholarships/fellowships Prizes/awards Self-employment income/honoraria Royalties Treaty-exempt wages Performers’ fees (artists/athletes) What to Reporton Form 1042-S

  5. 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) Don’t forget treaty-exempt income paid to residents for tax purposes! See 1042-S instructions for complete information What to Reporton Form 1042-S cont.

  6. 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) What Not to Report on Form 1042-S

  7. 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 Ensuring Complete and Accurate Data

  8. Year-end payments; setting cutoffs Workflow Controls A/P Issues

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

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

  11. 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 can’t 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 Under Withholding and Grossing Up

  12. 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) Missing TINS

  13. 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 Other Issues and Updates

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