What is a 1042-S and what do I do with it on my Canadian return?

Why you receive a 1042-S instead of a T-slip

The 1042-S is the IRS's version of an information slip aimed specifically at payments to non-US persons, the counterpart to the 1099 series US residents receive. A payer is required to withhold US tax at the source on many types of US-source income paid to a non-resident and to report exactly what was paid and withheld to both the recipient and the IRS. It typically arrives by mid-March for the prior calendar year, later than most Canadian slips, so it is worth requesting a copy directly from the payer if it has not shown up by the time you are ready to file.

A single Canadian can receive more than one 1042-S in the same year: one from a brokerage for dividends, another from a publisher for royalties, and a third from an online platform for creator income, each with its own income code and withholding rate. There is no requirement that a payer combine these onto a single slip, so gathering all of them before you start the T1 avoids missing a smaller one that arrived separately from the rest.

Reading the income codes on the slip

Box 1 of the 1042-S shows an income code that tells you what kind of payment it is, since the same slip format covers dividends, interest, royalties, and various categories of personal services and platform income. The gross income paid appears in one box, the tax rate applied in another, and the actual US tax withheld in a third. Common situations for a Canadian include:

• dividends from US stocks, generally withheld at the treaty rate of 15% once a valid W-8BEN is on file;
• royalties, such as book royalties or licensing income, often withheld at 10% under the treaty rather than 15%;
• rental income from US real property, unless the 871(d) election is in place; and
• platform payments from a US company such as YouTube, Twitch or a similar service, sometimes withheld at the full 30% if no treaty documentation was on file with the platform.

Converting the slip and claiming the foreign tax credit

Every amount on the 1042-S is in US dollars and has to be converted to Canadian dollars before it goes on your T1, generally using the exchange rate in effect on the date each payment was made or a reasonable average for the year, applied consistently. The gross income, not the amount you actually received after withholding, is what gets reported as income; the tax withheld is then claimed separately as a foreign tax credit on Form T2209, up to the Canadian tax otherwise payable on that same income. Keeping the 1042-S together with your brokerage or platform statements makes it much easier to reconcile the two at filing time, especially when a payer issues more than one 1042-S for different types of income during the year.

What to do if the withholding rate looks too high

A 1042-S showing withholding at 30% instead of a lower treaty rate almost always means the payer did not have valid treaty documentation, most often a Form W-8BEN, on file when the payment was made. This is common with online platforms and newer brokerage accounts where the paperwork was never completed or has expired. Two responses are available depending on timing:

1. Update the W-8BEN with the payer right away so future payments withhold at the correct treaty rate instead of the default 30%.
2. For amounts already over-withheld, file a US non-resident return, Form 1040-NR, for that year to claim the excess back directly from the IRS, since a Canadian foreign tax credit only offsets Canadian tax and cannot recover a US over-withholding by itself.

Filing the 1040-NR to recover an over-withholding is worth doing even for a modest amount, since the alternative is simply leaving that cash with the IRS permanently while your Canadian foreign tax credit is capped at whatever Canadian tax the income actually generates.

The reverse problem also happens: a payer sometimes withholds nothing at all when it should have withheld at the treaty rate, usually because documentation was missing in the other direction or the payer misclassified the payment. That does not remove the underlying US tax liability; it just means the 1042-S, if one was even issued, will not show a credit to claim, and the US tax may still need to be addressed directly with the IRS depending on the type and size of the income involved.

When a 1042-S signals a bigger reporting question

Receiving a 1042-S for the first time is often the first concrete sign that a Canadian resident has crossed into US reporting territory, whether through a growing US brokerage account, a book royalty, or platform income. It is worth using that moment to check whether a related filing has also been triggered, such as T1135 for the underlying US property or account, rather than treating the slip as a one-off document to file away.

How we handle 1042-S reporting for clients

We reconcile every 1042-S against the underlying brokerage or platform statement, confirm the withholding rate matches what the treaty actually allows for that type of income, and prepare a US return where an over-withholding is worth recovering. For clients with multiple income sources across the border, we track the slips year over year so a missing or late one is noticed before the filing deadline rather than after. Our cross-border tax services cover this alongside the rest of a client's US and Canadian filings.

Source: IRS — About Form 1042-S.