Section — Instruction 1042 — Instructions for Form

This section is used by the withholding agent to reconcile the amount of U.S. source FDAP income reportable under chapter 4 and paid by the withholding agent during the calendar year with the total amount of U.S. source FDAP income reported on all Forms 1042-S filed by the withholding agent for the calendar year (including amounts reported under both chapter 3 and chapter 4). You must complete this section even if you did not make any payments subject to chapter 4 withholding during the calendar year. This section also allows reporting of the amounts of U.S. source FDAP income for which chapter 4 withholding is required and reporting of the amounts for which withholding is not required according to the exemption from chapter 4 withholding applicable to each such amount.

Note: The amounts of U.S. source FDAP income reportable for chapter 4 are:

Payments of U.S. source FDAP income for which withholding under chapter 4 was applied to the payment, plus
Payments of U.S. source FDAP income for which withholding under chapter 4 was not required but that are subject to reporting for chapter 3 purposes on Forms 1042-S.

Line 1. Enter the amounts of U.S. source FDAP income required to be withheld upon under chapter 4, including amounts withheld upon but for which no deposit has been made under an escrow procedure.

Line 2. Enter amounts of U.S. source FDAP income not required to be withheld upon under chapter 4 on lines 2a through 2d according to the exception to withholding that applied to each payment reportable on Form 1042-S. The amount on line 2e should equal the sum of lines 2a through 2d.

Line 2a. Enter the amounts of U.S. source FDAP income that are withholdable payments, but for which the withholding agent has obtained documentation that establishes a chapter 4 status that does not require withholding under chapter 4 (for example, PFFI).

The amount reported on this line should generally equal the aggregate amount reported in box 2 of all of the Forms 1042-S you filed for the calendar year for which the following chapter 4 exemption codes were reported in box 4a.

Code 21 (other payment not subject to chapter 4 withholding).

Line 2b. Enter the amounts of U.S. source FDAP income that are not withholdable payments because they are nonfinancial type payments (for example, royalties, services, rents). The amount reported on this line should generally equal the aggregate amount reported in box 2 of all of the Forms 1042-S you filed for the calendar year for which exemption code 16 (excluded nonfinancial payment) was included in box 4a.

Line 2c. Enter the amounts of U.S. source FDAP income that are not withholdable payments because they are payments related to grandfathered obligations (for example, obligations outstanding on July 1, 2014). See Regulations section 1.1471-2(b). The amount reported on this line should generally equal the aggregate amount reported in box 2 of all of the Forms 1042-S you filed for the calendar year for which exemption code 13 (grandfathered payment) was included in box 4a.

Line 2d. Enter the amounts of U.S. source FDAP income that are not withholdable payments because they are payments of effectively connected income (ECI). The amount reported on this line should generally equal the aggregate amount reported in box 2 of all of the Forms 1042-S you filed for the calendar year for which exemption code 14 (effectively connected income) was included in box 4a.

Line 2e. Enter the sum of all amounts of U.S. source FDAP income required to be reported on Form 1042 but that are not required to be withheld upon under chapter 4 (sum of lines 2a through 2d).

Line 4. Enter the sum of all amounts shown in box 2 of Form 1042-S that are payments of U.S. source FDAP income (including amounts reported under both chapter 3 and chapter 4). The amount on line 4 should equal the total gross amounts of U.S. source FDAP income reported on line 62c.

Line 5. The amount on line 5 should be the total reported on line 4 (total amount of U.S. source FDAP income reported on all Forms 1042-S) less the total reported on line 3 (total U.S. source FDAP income reportable under chapter 4).

Line 6. If the amount reported on line 5 is other than zero, use this line to provide an explanation for the variance. If additional space is needed, attach a sheet to Form 1042 explaining the difference noted on line 5.