Important Notice for Payments to Foreign Persons/Partners
If your company has U.S. partnership returns with foreign partners or makes payments of U.S. source income (including interest, dividends, or rental income) or independent contractor payments to a non-U.S. individual or entity, it is important to carefully review the following information.
To meet U.S. filing requirements to report foreign withholding tax, you must file or extend the relevant form by March 15, 2021:
- Form 8804 is required for any U.S. partnership with foreign partners and U.S. gross effectively connected income (generally, active operating income). Even if the partnership has an operating income loss or taxable income loss, you still may have a filing requirement.
- Form 1042 is required for any entity (not just partnerships) that makes 1099-type payments to non-U.S. individuals. This includes, but is not limited to, interest, dividends, independent contractor payments and royalties. The 1099 equivalent form to provide to the foreign individual is Form 1042-S (a Form 1099 should never be provided to a foreign person). It is important to note for partnerships – the withholding determination is based on the allocable share of income being allocated to each partner and does not necessarily relate to distributions. Also, for income that is not effectively connected with a U.S. trade or business, the withholding is on the gross income amount and not the net amount.
The due date for these forms is quickly approaching. Forms 8804, 1042 and 1042-S are due March 15, 2021. Please note – filing an extension does not extend the time for payment of tax.
- The Form 8804 filing deadline is extended six months by filing Form 7004. However, if you have filed (or plan to file) Form 7004 electronically to extend the Form 1065, then you will need to mail a paper copy of the Form 7004 to separately extend the Form 8804.
- The Form 1042 filing deadline is extended six months by filing Form 7004. If you file (or intend to file) a Form 7004 electronically to extend the associated entity return, then you would need to mail a paper copy of the Form 7004 to separately extend the Form 1042.
- If you file Form 1042, you also have a Form 1042-S filing requirement. However, the Form 1042-S filing deadline is only eligible for a one-month extension by filing Form 8809. If one month is not enough, then a second extension can be filed but granted only at the discretion of the IRS. Do not file Form 7004 to extend Form 1042-S.
Please reach out to your KSM advisor with any questions or complete this form.
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