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Instructions for Form 1042-S

Box 1, Income Code(p20)

All filers must enter the appropriate 2-digit income code from the list on the next page. Use the income code that is the most specific. See Pub. 515 for further explanation of the income codes. Below are examples on how to use some of the income codes.
  1. Use code 09 for the following types of capital gain:
    1. Gains on disposal of timber, coal, or domestic iron ore with a retained economic interest, unless an election is made to treat those gains as income effectively connected with a U.S. trade or business;
    2. Gains on contingent payments received from the sale or exchange after October 4, 1966, of patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property;
    3. Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966; and
    4. Certain gains from the sale or exchange of original issue discount obligations issued after March 31, 1972.
  2. Use code 17 for payments for personal services performed by an independent contractor as contrasted with those performed by an employee. This includes payments that are subject to the business profits article of a treaty.
  3. Use code 29 (deposit interest) if you are paying bank deposit interest, not code 01 (interest paid by U.S. obligors-general).
  4. Use code 24 (qualified investment entity (QIE) distributions of capital gains) for distributions of capital gains from a QIE. Use code 36 (capital gains distributions) for capital gain distributions (dividends) paid or credited by mutual funds (or other regulated investment companies). Include short-term capital gain dividends (use exemption code 02 (exempt under IRC (other than portfolio interest)) in box 3a). Note.Exempt-interest dividends should be reported under income code 01 (interest paid by U.S. obligors-general) (use exemption code 02 (exempt under IRC (other than portfolio interest)) in box 3a).

  5. Use code 28 for gambling winnings. These are proceeds from a game other than blackjack, baccarat, craps, roulette, or big-6 wheel. For more information, see Pub. 515.
  6. Use code 33, 34, 35, 53, or 54 for all substitute payment transactions. For more information, see Regulations sections 1.861-2(a)(7) and 1.861-3(a)(6). For payments of interest or substitute interest made by a withholding agent to a QI that assumes primary withholding responsibilities for substitute interest, the withholding agent and the QI should use code 33 or 54. For payments of dividend equivalent payments made by a withholding agent to a QI acting as a QDD, a withholding agent and a QI should use code 34 or 53. See Revenue Procedure 201X-XX for more information on when a QI assumes primary withholding responsibilities for substitute interest or dividend equivalent payments.
  7. Use code 37 (return of capital) for a nondividend distribution. This is a distribution that is not paid out of the earnings and profits of a corporation. It represents a distribution in part or full payment in exchange for stock.
  8. Use codes 38 and 39 for payments to covered expatriates. Use code 38 for a payment of eligible deferred compensation subject to section 877A(d)(1) and use code 39 for a distribution from a nongrantor trust subject to section 877A(f)(1). For more information, see Notice 2009-85.
  9. Use code 40 (other dividend equivalents under IRC section 871(m)(formerly 871(l))) for other U.S.-source dividend equivalents. These are dividend equivalent payments under section 871(m) that are not substitute dividend payments identified with income code 34 or 53.
  10. Use code 41 (guarantee of indebtedness) for certain guarantee of indebtedness payments. These are amounts paid for the provision of a guarantee of indebtedness that was issued after September 27, 2010.
  11. Use either code 42 (earnings as an artist or athlete – no central withholding agreement) or 43 (earnings as an artist or athlete – central withholding agreement) for payments to an artist or athlete. A central withholding agreement is Form 13930, Application for Central Withholding Agreement, plus additional information specified in the instructions to such form, that is entered into by the artist or athlete, a designated withholding agent, and the IRS. For more details, see Pub. 515.
  12. Use code 50 (income previously reported under escrow procedure) with respect to a recalcitrant account holder of a dormant account for which a participating FFI reported the income on Form 1042-S in a prior calendar year but for which the participating FFI was not required to deposit the tax withheld or determined that withholding was not required until the current calendar year under an applicable escrow procedure. For additional information on the escrow procedure for dormant accounts, see Regulations section 1.1471-4(b)(6). Also use code 50 for income reported on a Form 1042-S in a prior calendar year for which tax withheld was not deposited pursuant to the escrow procedure for undetermined amounts of income and such withheld tax is now required to be deposited in the current calendar year. For additional information on the escrow procedure for undetermined amounts of income, see Regulations section 1.1441-3(d)(1). For instructions on reporting amounts withheld during the current calendar year that you are not depositing pursuant to the escrow procedure, see the instructions for box 7 later.
  13. Use code 52 (dividends paid on certain actively traded or publicly offered securities), 53 (substitute payments-dividends paid from certain actively traded or publicly offered securities), 51 (interest paid on certain actively traded or publicly offered securities), 54 (substitute payments-interest from certain actively traded or publicly offered securities), and 13 (royalties paid on certain publicly offered securities) if the income paid is described in Regulations section 1.1441-6(c)(2) and you have reduced the rate of withholding under an income tax treaty without the recipient providing a U.S. or foreign TIN.
If you paid more than one type of income to or on behalf of the same recipient, you must complete a separate Form 1042-S for each income type.
Although income codes are provided for short-term OID and notional principal contract income, those items are not always subject to reporting on Form 1042-S. For example, short-term OID may need to be reported by an NQI or flow-through entity if those amounts are paid to foreign persons and another withholding agent backup withheld on those amounts under the presumption rules. Notional principal contract income is reportable if it is effectively connected with the conduct of a trade or business in the United States or results in the payment of interest under Regulations section 1.446-3(g)(4) or a dividend equivalent under section 871(m)) and the regulations thereunder (for which a Form 1042-S is required). For more information, see the regulations under chapter 3 and Pub. 515.