IRS Issues Corrections to Income Codes in the 2017 Instructions for Form 1042-S

September 25, 2017 Paul Ogawa

The IRS recently issued a correction to their 2017 Instructions for Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. The 1042-S is generally used to report payments from U.S. sources to foreign persons.

The IRS corrections relate to income codes on page 21 of the 2017 Instructions for Form 1042-S.

  • Income Code 54 was changed from “Other Income” to “Substitute payments-interest from certainly traded or publicly offered securities”. Withholding agents should use Income Code 54 to report payments of interest on actively traded or publicly offered securities if the interest is described in Regulations section 1.1441-6(c)(2) and the withholding agent reduced the rate of the withholding under an income tax treaty.
  • Income Code 23 was changed from “Gross income – Other” to “Other Income”. Agents should use Income Code 23 to report payments of income for which no other code applies.

Please note that these codes are correct on the 2017 Form 1042-S: The correction was made to the instructions alone.

About the Author

Paul Ogawa is a Junior Regulatory Counsel at Sovos Compliance. As part of the Regulatory Analysis team, his main areas of focus are state and federal tax withholding, the Affordable Care Act (ACA), and Canadian tax information reporting. Prior to Sovos, Paul worked as a litigation attorney in Boston area law firms, representing clients in insurance subrogation claims, family law matters, and employment disputes. Paul is a member of the Massachusetts Bar, earned his B.A. from Brandeis University and his J.D. from the Suffolk University Law School.

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