Foreign Filings - Electronic Filing Requirements | OH IN KY

Electronic Filing Required for Certain Foreign Filings

Published on by Mary Benintendi in International Business, Tax Services

Electronic Filing Required for Certain Foreign Filings
  Reading time 3 minutes

Update: On February 27, 2024, IRS Notice 2024-26 announced relief and that they will grant an administrative exemption for this requirement for withholding agents (both U.S. and foreign persons) in 2024 and for foreign persons in 2025.

Original post published on February 15, 2024.

Organizations with international business operations have some new e-filing requirements this year stemming from changes in the Taxpayer First Act – and some of the changes are dramatic. Let’s unpack them, starting with which forms are affected.

Which forms are affected?

Form 1042 and Form 1042-S are filed by U.S. taxpayers to report payments to foreign persons. These forms are due March 15.

Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, is used to report tax withheld on the income of foreign persons.

Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, is used to report amounts paid to foreign persons by a U.S. taxpayer.

What are the changes?

On February 21, 2023, the U.S. Department of the Treasury and the IRS issued final regulations for the Taxpayer First Act. Within this final decision, new electronic filing requirements were applied to Form 1042 and Form 1042-S beginning with tax year 2023, where the forms will be filed in 2024.

Form 1042 and 1042-S are required to be electronically filed if any of the following apply to the withholding agent:

  • Is a financial institution,
  • Files 10 or more informational returns during the year, or;
  • Is a partnership with more than 100 partners.

A major change to the number of informational returns

The final regulation mandates that filers aggregate nearly all types of information returns covered by the regulation, which are required to be filed during the calendar year. This aggregation is necessary to determine whether the filer meets the 10-return threshold.

Types of forms included are Forms 1099-MISC,1099-NEC, W-2, 1098, and more. This will determine if the taxpayer is required to electronically file their information returns. This is a dramatic change from the prior rule of 250 information returns that were not previously aggregated.

A taxpayer that does not file these forms electronically, but is required to do so, will be subject to a penalty unless reasonable cause is established. The penalty applies separately to original and amended returns.

Talk to us

If you have any questions on the impact of electronic filing requirements, or questions about international tax and how to optimize your tax position, the Barnes Dennig team of top international tax pros is here to help. Contact us today.

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You might also be interested in upcoming regulations for basis in controlled foreign corporations or want to know more about relief for taxpayers on foreign tax credit regulations. Make sure you’re on top of the rules for the Foreign Bank Account Report (FBAR) and the requirements of Permanent Establishment (PE).



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