Page 44 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
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Fileid: … tions/P515/2020/A/XML/Cycle10/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
adjustments, or if you discover the overwith- Set-off procedure. Under the set-off pro- and withheld from the payment under Chap-
holding after the entire amount of tax has been cedure, you repay the beneficial owner or ter 3, and payments to which Chapter 4 with-
deposited, you can use either the reimburse- payee the amount overwithheld by reducing the holding is applied or which are allocated on an
ment procedure or the set-off procedure to ad- amount you would have been required to with- applicable withholding statement provided by a
just the overwithholding. hold on later payments you make to that per- participating FFI or registered deemed-compli-
If March 15 is a Saturday, Sunday, or son. These later payments must be made be- ant FFI to a Chapter 4 withholding rate pool of
fore the earlier of:
U.S. payees (Chapter 4 reportable amounts).
TIP legal holiday, the next business day is • The date you actually file Form 1042-S for Do not use Forms 1042 and 1042-S to report
the final date for these actions. the calendar year in which the amount was tax withheld on the following.
overwithheld, or
Reimbursement procedure. Under the re- • March 15 of the year after the calendar • Wages, salaries, or other compensation
reported on Form W-2 (see Wages Paid to
imbursement procedure, you repay the benefi- year in which the amount was overwith- Employees—Graduated Withholding, ear-
cial owner or payee the amount overwithheld. held. lier, under Pay for Personal Services Per-
You use your own funds for this repayment. You formed).
must make the repayment by the earlier of On Form 1042 and Form 1042-S for the cal- • Any part of a U.S. or foreign partnership's
March 15 of the year after the calendar year in endar year in which the amount was overwith- (other than a publicly traded partnership)
which the amount was overwithheld or the date held, show the reduced amount as the amount effectively connected taxable income allo-
the Form 1042-S is actually filed with the IRS. required to be withheld. cable to a foreign partner (see Partnership
For example, if you overwithhold tax in 2019, For tax year 2020, a withholding agent Withholding on Effectively Connected In-
you must repay the beneficial owner by March may rely on proposed regulations (83 come, later).
15, 2020. You must keep a receipt showing the ! FR 64757) which allow adjustments to • Dispositions of U.S. real property interests
CAUTION
date and amount of the repayment and provide overwithholding using the reimbursement or by foreign persons (see U.S. Real Property
a copy of the receipt to the beneficial owner. set-off procedures until the extended due date Interest, later).
You may reimburse yourself by reducing any for filing Form 1042-S (unless a Form 1042-S
subsequent deposits you make before the end has already been filed with the IRS or furnished • Pensions, annuities, and certain other de-
ferred income reported on Form 1099.
of the year after the calendar year in which the to the recipient). • Income, social security, and Medicare
amount was overwithheld. The reduction can- taxes on wages paid to a household em-
not be more than the amount you actually re- ployee reported on Schedule H (Form
paid to the beneficial owner or payee. Overwithholding discovered at a later date. 1040 or 1040-SR).
If you will reduce a deposit due in the follow- If you discover after March 15 of the following
ing year, you must show the total tax withheld calendar year that you overwithheld tax for the • Amounts subject to backup withholding un-
der section 3406, including withholdable
and the amount actually repaid on a timely filed prior year, do not adjust the amount of tax re- payments that are reportable payments
(not including extensions) Form 1042-S for the ported on Forms 1042-S (and Form 1042) or on and that are paid to a recalcitrant account
calendar year in which the amount was over- any deposit or payment for that prior year. Do holder of a participating FFI or registered
withheld. You must state on a timely filed (not not repay the beneficial owner or payee the deemed-compliant FFI that has elected on
including extensions) Form 1042 that you are amount overwithheld unless you are a withhold- its withholding statement for withholding
claiming a credit in accordance with Regula- ing agent for the payment that is a QI, WP, WT, under section 3406 to apply instead of
tions section 1.6414-1. or participating FFI that is eligible to file a collec-
tive refund on behalf of one or more of its ac- withholding under Chapter 4.
Example. James Smith is a resident of the count holders, partners, beneficiaries, or own- Forms 1042 and 1042-S must be filed
United Kingdom. In December 2019, domestic ers (as applicable). See the applicable DUE by March 15 of the year following the
corporation M paid a dividend of $100 to agreement of each such entity for details on the calendar year in which the income sub-
James, at which time M withheld $30 under requirements for a collective refund. ject to reporting was paid. If March 15 falls on a
Chapter 3 and paid the balance of $70 to him. In this situation (other than a collective re- Saturday, Sunday, or legal holiday, the due
In February 2020, James gave M a valid Form fund filed by the withholding agent), the recipi- date is the next business day.
W-8BEN. He advises M that under the income ent will have to file a U.S. income tax return
tax convention with the United Kingdom, only (Form 1040NR, Form 1040NR-EZ, or Form
$15 should have been withheld from the divi- 1120-F) to claim a refund or credit or, if a tax re- Form 1042. Every U.S. and foreign withhold-
dend and requests repayment of the $15 over- turn has already been filed, a claim for refund ing agent that is required to file a Form 1042-S
withheld. Although M Corporation had already (Form 1040X or amended Form 1120-F) to re- also must file an annual return on Form 1042.
deposited the $30, the corporation repaid cover the amount overwithheld. See Regula- You must file Form 1042 even if you were not
James $15 before the end of February. tions section 1.1474-5 for the specific require- required to withhold any income tax under
During 2019, M made no other payments ments that apply to obtain a credit or refund of Chapter 3 on the payment, or if the payment is a
from which tax had to be withheld. On its timely tax actually withheld under Chapter 4. As de- Chapter 4 reportable amount.
filed 2019 Form 1042, M reports $15 as its total scribed in Notice 2015-10, available at You must file Form 1042 with the:
tax liability and $30 as its total deposits. M re- IRS.gov/irb/2015-20_IRB#NOT-2015-10, the
quests that the $15 overpayment be credited to IRS intends to issue regulations providing that
its 2020 Form 1042 rather than refunded. an otherwise allowable claim for refund or credit Ogden Service Center
The Form 1042-S that M files for the divi- made by a claimant that is the beneficial owner P.O. Box 409101
dend paid to James in 2019 must show a tax of a withheld payment is only available to the Ogden, UT 84409
withheld of $30 in box 7a, ($15) as an amount extent that the relevant withholding agent de-
repaid in box 9, and a total withholding credit of posited the amount withheld. See Notice
$15 in box 10. The Form 1042-S must show an 2015-10 available at IRS.gov/irb/ Form 1042-S. Every U.S. and foreign with-
exemption code in box 4a for an exemption 2015-20_IRB#NOT-2015-10 for additional infor- holding agent must file a Form 1042-S for
from Chapter 4 withholding based on the mation. amounts subject to Chapter 3 withholding and
payee's status. Chapter 4 reportable amounts unless an excep-
In June 2020, M made payments from which tion applies. The form can be filed electronically
it withheld tax of $200. On July 15, 2020, M de- Returns Required or on paper. A separate Form 1042-S is re-
posited $185, that is, $200 less the $15 credit quired for each recipient of income to whom
claimed on its Form 1042 for 2019. M timely Every withholding agent, whether U.S. or for- you made payments during the preceding cal-
filed its Form 1042 for 2020, showing tax liability eign, must file Forms 1042 and 1042-S to report endar year regardless of whether you withheld
of $200, $185 deposited, and $15 credit from amounts subject to Chapter 3 withholding paid or were required to withhold tax. However, if
2019. to foreign persons (including persons presumed you make a withholdable payment to an NQI or
to be foreign), even if no amount is deducted a flow-through entity that is allocable to a Chap-
ter 4 withholding rate pool as indicated on a
Page 42 Publication 515 (2020)