IRS Delays The New E-filing Requirement for Form 1042: What you should know!

There are some last-minute changes to the e-filing requirements of Form 1042, learn more:

Stephanie Glanville | March 5, 2024 | Read time: 8 minute(s) | Deadline, IRS Updates | No Comments

Just a week before the Form 1042 filing deadline, the IRS issued Notice 2024-26, revealing a postponement in the new requirement for electronic filing of Form 1042 for the 2023 tax year.

According to Notice 2024-26, withholding agents overseeing payment and withholding of foreign payees, both U.S. and Foreign agents, are administratively exempt from the new 1042 e-filing mandate for the 2023 tax year. This allows them to continue paper filing for the upcoming deadline on March 15, 2024. Furthermore, Foreign withholding agents have been granted an additional year of relief, exempt from the requirement to e-file Form 1042 for the 2024 tax year.

Background: Why the Delay in the New E-filing Requirement?

Form 1042, the Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, is an annual tax return statement used by withholding agents to report withholding under Chapter 3 or Chapter 4 on certain income of foreign persons. This includes nonresident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts.

Historically, Form 1042 has been filed on paper with the IRS on or before March 15 of the following year. However, in February 2023, the Treasury Department of the IRS published a Final regulation stipulating that withholding agents must electronically file Form 1042 and 1042-S for the 2023 tax year if they meet specific conditions.

Under the regulation, withholding agents are required to e-file Form 1042 if filing 10 or more returns of any type during the same calendar year, if they are a partnership with more than 100 partners, or if they are a financial institution. Failure to comply with the e-filing requirement could result in IRS penalties.

Delay New E-filing Requirement – An Overview

Post-publication, the IRS received feedback from withholding agents expressing difficulty in transitioning to e-filing. Challenges included a limited number of approved IRS Modernized e-file business providers for Form 1042 and difficulties accessing the schema and business rules for e-filing Form 1042.

Based on this feedback, the IRS released Notice 2024-26 on February 27, 2024, stating that U.S. withholding agents are administratively exempt from e-filing Form 1042 for the calendar year 2024. Foreign withholding agents are similarly exempt for calendar years 2024 and 2025.

In summary, this announcement provides a crucial relief for withholding agents who can now choose to continue filing Form 1042 either through traditional paper methods or opt for an e-file provider for the 2023 tax year, adhering to the March 15 deadline. This measured response from the IRS aims to alleviate the challenges faced by withholding agents, ensuring a more seamless and efficient filing process for everyone involved.

The Exemption Doesn’t Impact the 1042-S E-filing Requirement

It’s crucial to note that the exemptions provided in Notice 2023-26 do not affect the new 1042-S e-filing requirements. Businesses are still obligated to e-file Form 1042-S if they file more than 10 returns of any type during the same calendar year.

Why You Should Still E-file Form 1042 for the 2023 Tax Year:

Even though the IRS has exempted e-filing for Form 1042, opting for electronic filing services can offer several advantages:

1. Reduced Errors

Paper filing is prone to errors, whereas e-filing minimizes manual mistakes during data transfer. E-filing providers like TaxBandits incorporate internal audit features, ensuring alignment with IRS guidelines and reducing the likelihood of errors.

2. Virtual Work Challenges

In a virtual work environment, obtaining physical signatures for Form 1042 can be challenging. E-filing with approved providers eliminates the need for physical signatures, streamlining the process in a remote work setting.

3. Enhanced Compliance

Electronic filings contribute to improved compliance by providing instant validation that the form information has been accepted by the due date. This minimizes the risk of unnecessary or erroneous penalties associated with late submissions.

4. Bulk Filing Efficiency

For CPAs or tax professionals handling multiple 1042 returns, some e-filing providers offer bulk filing features. These features streamlined processes significantly reduce the time and effort required for filing multiple returns efficiently.

5. Efficient Record Keeping

E-filing facilitates efficient record-keeping for your 1042 documents. In case of audits, you can easily retrieve your records anytime and anywhere, ensuring a smooth and organized response to any potential inquiries.

E-file your Form 1042 with TaxBandits

As the IRS temporarily delays the new e-filing requirement for Form 1042, withholding agents have a unique opportunity to streamline their filing process with a reliable and approved provider. Look no further than TaxBandits, the pioneers in IRS-authorized e-filing services.

Despite concerns about limited options, TaxBandits has been at the forefront, securing approval for filing in 2022 and providing a trustworthy solution for the present and future.

TaxBandits distinguishes itself by offering not only e-filing services for Form 1042 but also for other crucial forms such as 1099, W-2, and 94x. With features like internal audits and bulk filing capabilities, TaxBandits ensures accuracy and efficiency in your filing process.

The platform supports Form 8453-WH / Form 8879-WH for electronic signatures, making the virtual filing experience seamless. Additionally, TaxBandits caters to your specific needs with support for Form 1043 and upcoming years.

When it comes to e-filing Form 1042 and other essential forms, TaxBandits stands as a trusted partner, providing a comprehensive solution for withholding agents. Simplify your filing experience and ensure compliance by choosing TaxBandits for all your IRS e-filing needs.