The IRS has released the new version of Form 1042-S, which is used to report U.S. source income earned by foreign persons and the withholding associated with that income. These Form 1042-S updates reflect important changes filers need to be aware of for the upcoming reporting season. Below is a breakdown of the 2025 1042-S changes (used to report income earned in 2024).
What is Form 1042-S and who files it?
Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding is used to report earnings of foreign persons. Businesses must file this form when they work with contractors, vendors, or other recipients that are foreign persons.
Differences from Form 1042:
Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons is used as a reconciliation form for total amounts reported on Form 1042-Ss. If you file Form 1042-S to any recipients, you must also file Form 1042. Form 1042 does not go to the recipient, this form is filed only with the IRS and should reflect total amounts reported and withheld on your businesses Form 1042-S forms.
Changes to Form 1042-S
1. New Box 7d
A new checkbox has been added to indicate when a form is being filed to correct a previous withholding amount for a specific recipient. This mostly affects intermediaries and foreign partnerships or trusts. This 1042-S Box 7d correction checkbox is one of the most notable Form 1042-S updates for 2025.
2. New Status Codes
Two new codes have been added for different types of entities:
- Chapter 3 Status Code 40: For Qualified Derivatives Dealers (QDD) partnerships.
- Chapter 3 Status Code 41: For U.S. government or tax-exempt entities. This code is exclusively used to indicate the Chapter 3 status of the withholding agent in Box 12b.
These 1042-S status codes represent key IRS 1042-S updates affecting withholding agents.
3. New Income Codes
Three new income codes are introduced for reporting specific types of payments:
- Code 59: Consent fees
- Code 60: Loan syndication fees
- Code 61: Settlement payments
These codes are optional for 2025 reporting but will be important if they apply to your business. These 1042-S new income codes are part of the broader Form 1042-S updates impacting reporting accuracy
4. Extension for Filing Statements
If you need more time to submit recipient statements, you can now request a 30-day extension. To do this, you’ll need to file IRS Form 15397 by fax to the IRS Technical Services Operations line at (877) 477-0572.
This is one of several 1042-S reporting changes included in the current IRS 1042-S updates.
5. Changes to Country Codes
The code “US” is now valid in Box 12f or 13b for reporting purposes.
6. Exemption Codes Update Coming in 2026
Starting in 2026, the IRS will require that exemption codes (or reduced withholding tax codes) be included for any tax withheld below 30%. For now, these codes are only needed if no tax is withheld at all.
Implications for Withholding Agents & SMBs
The latest Form 1042-S updates introduce several changes that withholding agents, financial institutions, and SMBs must account for during year-end reporting. New status codes and 1042-S new income codes may require updates to internal tax mapping, data collection, and review workflows. The addition of the 1042-S Box 7d correction checkbox also places more emphasis on tracking prior withholding adjustments to ensure corrections are filed accurately.
For SMBs, especially those handling cross-border payments for contractors, vendors, or partners, these 2025 1042-S changes may affect how payments are categorized and validated. Ensuring that entity classifications, country codes, and exemption details are complete and up to date is essential to reduce the risk of errors and avoid delays in IRS processing.
How to Prepare for 1042-S Changes
To get ready for these IRS 1042-S updates, withholding agents should begin reviewing their data fields, reporting systems, and payment classifications. It’s important to confirm that your technology or filing software supports the new status codes, country codes, and income types outlined in the latest Form 1042-S instructions.
Conducting an internal data audit ahead of reporting season can help identify missing or outdated information—especially for entities affected by the 1042-S status codes or new optional income codes. Organizations should also review their correction procedures to ensure they are ready to use Box 7d when adjustments are needed. Finally, plan ahead for the 30-day extension option if your business typically requires more time to issue recipient statements.
View 2025 Form 1042-S here and form 1042-S instructions here.
How eFileMyForms Can Help
Need to file your Form 1042-S? eFileMyForms has you covered with an easy and streamlined process.
Learn more about 1042-S eFile here.
With so many Form 1042-S updates this year, using a guided eFile tool ensures accuracy and reduces reporting risk.