IRS Posts 2027 Draft Instructions for Form 1042-S, Reporting Foreign Person Tax Withholding

The Internal Revenue Service has posted 2027 tax year draft Instructions for Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding. Form 1042-S is commonly used when potentially taxable distributions are made to non-U.S. citizens from certain accounts, including IRAs. Unlike distributions paid to U.S. citizens within the United States, non-citizens generally cannot waive tax withholding. But, by providing the payor organization with Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individual), foreign recipients can generally avoid otherwise-mandatory 30 percent withholding.

By doing so, they may instead have withholding applied at a rate determined by a tax treaty—if there is one—between their home country and the U.S. Withholding and related information about the recipient is then reported to the IRS on Form 1042-S.