FOREIGN PERSONS U.S. TAX REFUND IS IN OBLIVION

A foreign person’s U.S. source income is subject to 30% withholding tax by the withholding agents.

Withholding agents of foreign persons’ income tax could be their employers, payroll processors, financial institutions, property management company etc. These agents have the responsibility to collect 30% withholding tax on the gross income and remit it to IRS on time using Form 1042 and Form 1042-S.

Foreign persons’ are also given a copy of 1042-S by the withholding agents and they can use the forms to claim credit of taxes paid on their 1040NR or 1120F tax returns. Since the tax withheld in advance is on gross income, and actual tax is based on net income, most of the foreign person tax filer end up with a refund form IRS.
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