What is the Foreign Recipients of U.S. Income Study?
Nonresident aliens and other foreign persons who earn U.S.-source income are required to report this income on Form 1042-S, Foreign Persons’ U.S.-Source Income Subject to Withholding.This income is subject to a flat, statutory tax rate of 30 percent. However, this rate is frequently reduced or eliminated by an income tax treaty or statutory exemption. Income that is exempt from taxation because of a tax treaty or certain other exemptions must still be reported. U.S. individuals, corporations, or other entities paying U.S.-source income to foreign persons are required to withhold taxes on this income (except where statutory or treaty exemptions apply) or to appoint a withholding agent (normally a U.S. financial institution) to do so. Foreign financial institutions that enter into an agreement with the Internal Revenue Service, known as qualified intermediaries (QIs), may also serve as withholding agents. A withholding agent or qualified intermediary is fully liable for all taxes owed by a foreign beneficial owner and also reports the income paid to each recipient on a Form 1042S. Without this withholding requirement, there would be no effective way to enforce taxpayer compliance because foreign recipients are generally not required to file U.S. tax returns to report this income.
For assistance with any tax matters, including the IRS representation and disclosing your unreported foreign bank accounts, you may contact Zaher Fallahi, Tax Attorney, CPA, at (310) 719-1040 (Los Angeles) or (714) 546-4272 (Orange County), or e-mail to [email protected]