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With the end of the year close in sight, changes to 2016 tax reporting will become a popular topic of discussion. Due dates for returns of partnerships, S-corporations and C- corporations are changing, as well as the due date and certain reporting requirements for 1099 information returns. For higher education institutions, noteworthy changes are being made to the Form 1042-S.
Form 1042-S is used to report payments made to foreign recipients, whether to an individual or entity. In some instances, the payer is required to withhold a certain amount of tax, the default amount being 30%. The payee may be excluded from withholding if certain exceptions or conditions of a foreign tax treaty are met. A common example of a payment reported on Form 1042-S is a scholarship awarded to a foreign university student that exceeded the cost of qualified tuition, room and board.
The 1042-S requires common information such as name, address, foreign country and identification number for both the payer and payee of the transaction. It also identifies what types of payers and recipients are involved, i.e.: individual, estate, tax-exempt organization, corporation, etc. Most important, the Form 1042-S must show how much the recipient was paid, any amount withheld and the rate at which the taxes were withheld.
For 2016, all of the above information is still required, in addition to a few new items:
While most of the changes require minor additional record-keeping from higher education institutions, the addition of the LOB codes highlight something essential: It will be important to verify that recipients claiming a reduction in withholding meet the requirements of an applicable income tax treaty. Institutions have until March 15 after the close of the tax year to gather their information and file Forms 1042-S. Forms 1042-S for 2016 are due to the IRS by March 15, 2017, with a possible 30-day extension.
Contact us if you have any questions regarding Form 1042-S and visit the Our Thoughts On blog for more articles pertaining to the not-for-profit sector.
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