Flexibility in IRS extensions – don’t punish yourself

As withholding agents prepare for the March reporting deadlines, the IRS has introduced an important development. The Information Returns Intake System (IRIS) is now available for electronic filing of Tax Year 2025 Forms 1042-S for eligible U.S. filers. Foreign filers should continue using the FIRE system until its retirement.

During the transition period, IRIS and FIRE will operate in parallel. Beginning Filing Season 2027 (for Tax Year 2026 Forms 1042-S), IRIS will become the sole electronic filing system for information returns.

With system changes underway and reporting deadlines approaching, understanding both filing requirements and extension options has never been more important. This time of year is hard. Temperatures are low, daylight is scarce, and deadlines are imminent. Even the few sparks of hope delivered by turning our calendars to March, changing our clocks, and the first signs of daffodils do not extinguish our requirements as tax professionals.

For many, during early March, spreadsheets are all that we see when we close our eyes. But increased daylight does not have to translate into all‑nighters. If you are working through piles of W forms, income re-classifications, and foreign addresses, it is important to remember that extensions exist to help youandusing them is often not only sensible but essential.

Understanding the Forms

Form 1042‑S reports U.S.-sourced income paid to non‑U.S. persons. Withholding agents must file it with both the IRS and send a copy to the recipients, including detailed static and transactional data: payer (withholding agent) and payee information, income amounts, exemption codes, withholding rates, and intermediary details. Much of this relies on accurate Forms W‑8.

Form 1042, by contrast, is an annual summary return filed only with the IRS. It reports the aggregate amount of income subject to withholding, the total tax withheld, and the number of Forms 1042‑S issued.

Both forms are due on March 15, or the next business day if that date falls on a weekend or holiday. In 2026, this shifts the due date to March 16.

Additionally, Forms 1099 are used to report U.S.-sourced income paid to U.S. persons and undocumented recipients. These are required to be filed electronically with the IRS by March 31, except Form 1099-NEC, which is due February 2.

Extensions Available

Extensions are available for all forms, though the rules differ.

Extensions for Forms 1042‑S and 1099s

Form 1042‑S has two types of extensions: one for filing with the IRS and another for furnishing statements to recipients.

The IRS filing extensions is requested using Form 8809. Filing this form by March 16, 2026, grants an automatic 30‑day extension, extending the filing deadline to April 15. A second 30‑day extension may be requested, but this must be done on paper, not electronically, before the first extension expires and must include a justifiable reason. Acceptable reasons generally include circumstances beyond the withholding agent’s control, such as natural disasters, data loss, or serious illness.

Where payors are filing Forms 1099 electronically, they must use the same method to file an extension. This must be filed by March 31, providing an automatic extension to April 30.

The extension for furnishing 1042‑S statements to payees is requested using Form 15397, which must be faxed to the IRS by the filing deadline. This provides a one‑time 30‑day extension. Unlike the filing extension, no additional furnishing extension is permitted, even with a compelling reason.

Extension for Form 1042

Form 1042 has one extension available. Withholding agents may file Form 7004 by the filing deadline to obtain an automatic six‑month extension, moving the filing deadline to September 16 in 2026.

It is essential to remember that extensions apply only to filing, not to the payment of withheld taxes. Any late payments will incur interest and penalties regardless of whether a filing extension is in place.

Why Extensions Matter

Extensions are an important safeguard, especially given the severity of penalties for non‑compliance:

• Late or incorrect filings of Form 1042-S to the IRS carry a penalty per form. The value increases, up to the greater of $690 or 10% of the amount that should have been reported if the IRS deems there was intentional disregard for the rules. The actual penalty is based on how late the filing is compared to the deadline.

• Late or incorrect furnishings to recipients carries the same penalties, effectively doubling the fines for the same issue.

• Late or incorrect filing of Forms 1099 to the IRS are also on a per form basis. These penalties range from $60 to $680+ based on how late they are and whether intentional disregard is deemed to have occurred.

• Late filing of Form 1042 leads to a penalty of 5% of any unpaid tax for each month the return is late, up to a maximum of 25%. This is in addition to a late payment penalty of 0.5% of the unpaid tax for each month the tax is left unpaid, up to a maximum of 25%.

Each year these penalties increase further, emphasizing expected compliance. These consequences make clear that extensions should be viewed as a critical compliance tool rather than a fallback option.

Why Withholding Agents May Need Extensions

There are many legitimate reasons why withholding agents find March deadlines particularly challenging. Payee information is often delayed, incomplete, or in need of verification. Since withholding decisions hinge on accurate W Forms and treaty claims, missing or unclear documentation can stall the entire reporting process.

Income reclassification is another common issue. Payments may be recharacterized late in the reporting cycle, for example, shifting from FDAP income to capital income, requiring updates to withholding and reporting.

Technical or system‑related difficulties can also slow the process. High‑volume filers may encounter system bottlenecks, data processing delays, or infrastructure issues that impede accurate and timely submission.

Finally, Form 1042‑S reporting must reconcile with the annual Form 1042. Modern matching systems mean that inconsistencies can be quickly identified by the IRS, so reconciliation pressure is another factor that can necessitate additional time.

How TAINA Can Help

Meeting reporting deadlines, whether original or extended, ultimately depends on having timely access to accurate, validated data. TAINA’s platform supports withholding agents by:

·       Validating tax forms against requirements and cross-checking against books and records

·       Keeping reportable data in a safe and auditable system

·       Providing correct withholding tax rates for U.S. sourced income

·       Monitoring for changes in circumstances and expiring forms

·       Exporting data for reporting no matter what system you are using to prepare forms

With robust validation controls in place, institutions can approach filing season with greater confidence and reduced operational risk.

If you would like to explore how TAINA can help strengthen your withholding reporting framework, get in touch or request a demo to see the platform in action.

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