U.S. Tax Withheld From Your Income? Form 1042-S, Form W-8BEN and How Foreign Individuals Claim a Refund

When a U.S. payer sends certain U.S.-source income to a foreign person, it generally must withhold 30% unless a lower treaty rate or an exemption applies. Form W-8BEN is how you tell the payer you are foreign and claim a treaty rate. Form 1042-S is the year-end statement showing what was paid and withheld. If too much was withheld, the way to get it back is usually to file Form 1040-NR. If the right amount was withheld, a return may not be required — but that depends on your situation.

What income is subject to 30% withholding?

The 30% rule applies to "fixed, determinable, annual or periodical" (FDAP) income from U.S. sources that is not effectively connected with a U.S. business. Common examples include:

• Dividends from U.S. companies and funds.
• Royalties for U.S. use of intellectual property, including some content and licensing income.
• Rental income from U.S. property, unless the owner elects to be taxed on a net basis.
• Certain payments for services performed in the United States.
• Pensions, annuities, prizes and some other periodic payments.

Portfolio interest on most U.S. bank deposits and many bonds is generally exempt. Capital gains on U.S. stocks are generally not taxed for nonresidents who were not in the United States for 183 days or more during the year.

What does Form W-8BEN do?

Form W-8BEN is given to the payer — a broker, platform, publisher or company — not to the IRS. It certifies that you are a foreign individual and, in Part II, lets you claim a reduced rate under an income tax treaty between the United States and your country of residence. Without a valid W-8BEN, payers may withhold at 30% or even apply backup withholding. W-8BEN forms generally expire after three calendar years, or sooner if your circumstances change.

How do I read my Form 1042-S?

• Box 1 — income code (for example, dividends, royalties, compensation).
• Box 2 — gross income paid.
• Box 3 — chapter and exemption code, and the tax rate applied.
• Box 7 — federal tax withheld.
• Box 13 — your name, address and country, as the payer recorded it.

Check that the country and rate match your situation. A wrong country or a missing treaty claim is one of the most common reasons too much tax is withheld.

When should I file Form 1040-NR to get a refund?

If the payer withheld more than the correct amount — for example 30% instead of a 15% treaty rate on dividends — you can generally file Form 1040-NR to claim a refund of the excess. You will usually need an ITIN (or SSN) and must attach the Form 1042-S. Treaty positions sometimes require Form 8833 disclosure. Refund claims are generally subject to a three-year limitation period, so older years should not be left too long.

Federal income tax versus information reporting

The withholding itself is your federal income tax on that FDAP income; Form 1042-S is the information return that reports it to you and the IRS. If withholding was correct and you have no other U.S. income, you may not need to file a return. If you also have effectively connected income — for example, from a U.S. LLC business or a net-basis rental — you will generally need Form 1040-NR anyway.

Practical examples

• A resident of Mexico receives $8,000 of U.S. dividends through a U.S. broker with no W-8BEN on file; $2,400 (30%) is withheld. Under the U.S.–Mexico treaty, a lower rate may apply. Filing Form 1040-NR may recover the excess, and submitting a W-8BEN prevents the issue going forward.
• A Brazilian author earns U.S. royalties. Brazil has no income tax treaty with the United States, so 30% withholding generally stands and a refund may not be available.
• An Argentine engineer is paid by a U.S. company for a two-week project performed in Texas. That service income is U.S.-source and may be ECI; a 1040-NR is likely required.

Sources and official references

• IRS — About Form 1042-S
• IRS — About Form W-8BEN
• IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
• IRS Publication 519, U.S. Tax Guide for Aliens
• IRS — United States Income Tax Treaties A to Z
• IRS — About Form 1040-NR
• IRS — Individual Taxpayer Identification Number (ITIN)