Form 1042-S
Foreign Person's U.S. Source Income Subject to Withholding
Form 1042-S is the slip a US withholding agentissues to a non-resident alien showing US-source income and the tax withheld from it. If you are a Canadian with a US rental, it is the IRS mirror of the CRA's NR4 — and if a property manager or Airbnb has been taking 30% off the top of your rent, this is the document that proves it and lets you claim the money back.
⚠️ Important Disclaimer
This content is for informational purposes only and does not constitute legal, tax, accounting, or financial advice. Tax laws change frequently — always verify with the CRA and IRS or consult a qualified cross-border tax accountant before making decisions.
BorderBird is a rental-management and record-keeping tool. It is not an accountant and does not provide accounting, tax, or legal advice.
March 15 of the following calendar year — both filed with the IRS and furnished to the recipient
Non-resident aliens (including Canadians) receiving US-source rental income; and the withholding agents — property managers, platforms, and business tenants — who pay them
Key Takeaways
- Form 1042-S reports US-source income paid to a non-resident alien and the tax withheld from it. It is issued BY the withholding agent (property manager, platform, or business tenant) TO the landlord — you receive it, you do not file it.
- Due March 15 of the following calendar year: the IRS instructions require it to be “filed with the IRS and be furnished to the recipient of the income by March 15 of the following calendar year.”
- Rental income uses income code 14 (real property income). Box 2 is gross income; box 7a is federal tax withheld; box 3b is the chapter-3 rate — 30.00 by default.
- A valid Form W-8ECI changes the slip rather than removing it: box 7a becomes 0, box 3b becomes 00.00, and chapter-3 exemption code 01 (effectively connected income) appears in box 3a. You still get a 1042-S.
- The withholding in box 7a is a CREDIT, not a cost — it is claimed against the tax computed on Form 1040-NR. Throwing the slip away is how people lose the refund.
Who issues a 1042-S, and why you got one
The IRS instructions define a withholding agent as “any person, U.S. or foreign, that has control, receipt, or custody of an amount subject to withholding under chapter 3 who can disburse or make payments of an amount subject to withholding”. For a Canadian landlord with a US property, that is usually one of three parties:
- A US property manager collecting rent on your behalf.
- A short-term-rental platform. Airbnb states that a non-US host who does not file a US return sees “30% US tax withholding being applied to payouts from your US listings”, and reports it on a Form 1042-S issued the following January.
- A tenant paying rent in the course of a trade or business — a corporate tenant, not an individual renting a home for themselves.
An individual tenant paying you personally, with no withholding required, is not filing a 1042-S. That is why a long-term US rental held directly often produces no slip at all, while the same owner listing the same house on Airbnb suddenly gets one.
Reading the boxes that matter
A 1042-S has more than 20 boxes. For a rental, a handful of them carry the whole story:
- Box 1 — income code. Rental income is code 14, real property income. If your slip says something else, the payer has mis-typed the income and the rate in box 3b may be wrong too.
- Box 2 — gross income. This is gross rent, before anything. Not net of the platform fee, not net of your mortgage, not net of property tax.
- Box 3 / 3a / 3b — chapter 3. Box 3b is the rate applied: 30.00 unless an election is on file. Box 3a carries the exemption code — 01 means effectively connected income.
- Box 7a — federal tax withheld. The dollars actually sent to the IRS on your behalf. This is your credit.
The most expensive misreading is treating box 2 as your taxable income. It is not — it is the base the 30% was charged on, and the whole point of the W-8ECI election is to stop being taxed on that number.
30% of gross is not 30% of profit
Default withholding under IRC §1441 is 30% of gross fixed, determinable, annual or periodical (FDAP) income. Nothing is deducted first — not mortgage interest, not property tax, not insurance, not repairs, not depreciation.
On a mortgaged property that is frequently more than the profit. A US rental grossing $30,000 a year with $26,000 of real costs makes $4,000 — and is charged $9,000 of withholding. The tax exceeds the income by more than double.
The escape is the §871(d) election, made by giving your withholding agent a Form W-8ECI: the rent is treated as effectively connected with a US trade or business, taxed on a net basis at graduated rates, with the actual expenses deducted on Schedule E of a Form 1040-NR.
What a W-8ECI does to the slip
A common misunderstanding: the W-8ECI does not make the 1042-S go away. It changes what the slip says.
- Box 2 still shows your full gross rent.
- Box 7a becomes 0 — nothing was withheld.
- Box 3b becomes 00.00 and box 3a carries exemption code 01.
Two things about the W-8ECI catch people out. First, it is invalid without a US taxpayer identification number, so the real blocker is usually the ITIN application (Form W-7), not the W-8ECI itself. Second, it expires — it is valid to the last day of the third succeeding calendar year — and when it lapses the withholding agent silently resumes taking 30%. Nobody sends a warning; you find out when a payout arrives short.
Claiming the withholding back
Box 7a is a prepayment, not a penalty. To get it back you file a Form 1040-NR for that year, report the rental on Schedule E with actual expenses, and claim the box 7a amount as tax already withheld. If the withholding exceeded the tax on your net income — which, on a mortgaged property, it usually did — the difference is refunded.
You need the slip to do it. Two practical consequences:
- Keep every 1042-S. A missing slip means a missing credit.
- Reconcile it against your own records. Box 2 should match the gross rent you booked for that calendar year on a cash basis. If your books say $30,000 and the slip says $27,400, the platform is probably reporting net of its service fee, or the year boundary fell differently — either way you want to know before you file, not after.
The Canadian side of the same rent
The same money is reported twice and taxed once. As a Canadian resident you report worldwide income, so the US rent goes on a T776 with your T1, converted to Canadian dollars, and the US tax you actually paid is claimed as a foreign tax credit so the same dollar is not taxed twice.
Note the ordering problem this creates: the T1 is due 30 April, the 1040-NR generally 15 June, and the 1042-S itself is not required until 15 March. If you are on the default 30% and expect a US refund, the Canadian credit and the US return can end up settling in different years. That is a conversation to have with your accountant before the deadline, not after.
Frequently asked questions
Do I file Form 1042-S?
Not as a landlord. Form 1042-S is filed by the withholding agent — the property manager, platform, or business tenant who paid you — and furnished to you as the recipient. You use it as support when you file Form 1040-NR. (The agent also files a summary Form 1042 for the same year.)
When should my 1042-S arrive?
The IRS instructions require Forms 1042-S to be filed with the IRS and furnished to the recipient by March 15 of the following calendar year. Platforms often issue earlier — Airbnb says the following January — but March 15 is the deadline you can hold an agent to.
I filed a W-8ECI. Why did I still get a 1042-S?
Because the slip reports the income, not just the tax. With a valid W-8ECI on file the slip still shows your gross rent in box 2, but box 7a is 0, box 3b is 00.00, and box 3a carries chapter-3 exemption code 01 for effectively connected income. A 1042-S with zero withheld is the correct outcome, not an error.
Is Form 1042-S the same as a 1099-K?
No, and which one you get is determined by the form you gave the platform. A W-9 (US person) leads to a Form 1099-K. A W-8ECI or W-8BEN (non-US person) leads to a Form 1042-S. A Canadian host receiving a 1099-K instead of a 1042-S usually means the platform has you recorded as a US person — worth correcting, because it affects both countries' returns.
What is the difference between a 1042-S and an NR4?
They are the same idea on opposite sides of the border. The NR4 is issued by a Canadian payer to a non-resident, reporting Canadian-source income and Part XIII tax withheld (25% on gross rent, or on net with an approved NR6). The 1042-S is issued by a US withholding agent to a non-resident alien, reporting US-source income and chapter-3 tax withheld (30% on gross, or 0 with a W-8ECI). A Canadian who owns on both sides can receive both.
The gross in box 2 doesn't match my books. What now?
Check three things before assuming an error: whether the payer is reporting gross rent or net of its own service fee, whether a December payout landed in January (the slip is calendar-year and cash-basis to the agent), and whether the amount is in USD while your books are in CAD. If it is genuinely wrong, ask the withholding agent for a corrected slip — they can reissue.
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