Frequently Asked Questions
- Year-End Tax Forms and Statements
- Composite Form 1099
- Form 1099-DIV
- Form 1099-B
- Cost Basis Reporting Information
- Form 1099-Q
- Form 1099-R
- Form 5498 and Form 5498-ESA
- Form 1042-S
- Tax Withholding for Retirement Accounts
- Capital Gains—Long-Term, Short-Term
- Direct U.S. Government Obligation
- Foreign Source Income/Foreign Tax Paid
Form 1042-S reports gross distributions of ordinary income dividends (including short-term capital gain and interest-related dividends) and other distributions from long-term capital gains, gains from U.S. real property interests and return of capital that are paid during the year to beneficial owners or other payees who are either nonresident alien individuals or foreign entities. Foreign entities include foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments, international organizations and qualified intermediaries.
Beginning in calendar year 2014, Form 1042-S reports information relating to the Foreign Account Tax Compliance Act (FATCA) for foreign entities, including the entity’s Global Intermediary Identification Number (GIIN), Chapter 4 status, Foreign Tax Identification Number (FTIN) and any FATCA withholding applicable under Chapter 4 of the U.S. Internal Revenue Code (Code).
If you are a nonresident alien individual or foreign entity with investments in Franklin Templeton U.S. mutual funds, you will receive a Form 1042-S for 2014, if you received ordinary income dividends (including short-term capital gain and interest-related dividends) or other distributions from long-term capital gains, gains from U.S. real property interests or return of capital during calendar year 2014.
Box 1: The income code is a two-digit numerical code used by the U.S. Internal Revenue Service (IRS) to identify the type of income paid by the fund and reported in box 2. The fund may use one or more of the following income codes: ordinary income dividends, interest-related dividends and gains from U.S. real property interests (06), short-term capital gain dividends (06), capital gain dividends (distributions from long-term capital gains) (36), return of capital distributions (37) and tax exempt-interest dividends (01). Distributions from retirement plans are reported under code 14.
Box 2: Gross income represents the amount of income paid by the fund that is described by the income code in box 1. Federal tax withheld, as reported in box 7, if any, is included in the amount reported in box 2.
Box 3: An x in this box indicates that U.S. withholding tax has been deducted under Chapter 3 of the Code. If there is no withholding reported in box 7, box 3 will be checked per IRS instructions.
Box 3a: The exemption code is a two-digit numerical code used by the IRS to identify the authority for an exemption from U.S. withholding tax under Chapter 3 of the Code. If the withholding tax rate entered in box 3b is 0%, the appropriate exemption code will be reported in box 3a. For example, exemption code 02 is used for fund distributions that are exempt from withholding under current U.S. tax law. If a withholding amount is reported in box 7, exemption code 00 will appear in box 3a.
Box 3b: The U.S. withholding tax rate under Chapter 3 of the Code is generally 30%, unless the income is exempt from withholding, or is subject to a lower rate of tax based on a tax treaty between the U.S. and your country of residence. The rate is 0% if the gross income reported in box 2 is exempt from withholding. If your fund is a qualified investment entity for purposes of the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), the withholding tax rate is 30%, or a lower treaty rate, on gains from dispositions of U.S. real property interests for foreign shareholders owning not more than 5% of a fund.
Box 4: An x in this box indicates that U.S. withholding tax has been deducted under Chapter 4 of the Code (FATCA withholding). Chapter 4 refers to the Foreign Account Tax Compliance Act (FATCA).
Box 4a: The exemption code is a two-digit IRS numerical code used by the IRS to identify the authority for an exemption from U.S. withholding tax under Chapter 4 of the Code. If the rate entered in box 4b is 0%, the appropriate exemption code will be reported in box 4a. For example, exemption code 15 is used when the payee is not subject to Chapter 4 withholding because the payee has certified on Form W-8 that it has registered as FATCA compliant on the IRS FATCA Registration System or that it is otherwise subject to an exemption from Chapter 4 withholding. If a withholding amount is reported in box 7, exemption code 00 will appear in box 4a.
Box 4b: The U.S. withholding tax rate under Chapter 4 of the Code is generally 30%, unless the income is exempt from withholding, and may not be reduced to a lower rate by a tax treaty. The rate is 0% if the gross income reported in box 2 is exempt from withholding.
Box 7: Federal tax withheld represents the total amount of U.S. federal tax withheld by the fund under Chapter 3 or 4 of the Code, if any, from the distributions paid by the fund during 2014, as reported in box 2. The tax withheld is included in the gross income amount reported in box 2.
Box 10: Reports the total amount of U.S. tax withheld by all withholding agents, including the fund.
Box 13h: The recipient code is a two-digit numerical code used by the IRS to identify the type of recipient for Chapter 3 purposes that received a fund distribution.
Box 13i: The recipient code is a two-digit numerical code used by the IRS to identify the type of recipient for Chapter 4 purposes that received a fund distribution.
Box 14b: The country code is a two-letter code used by the IRS to identify the country in which the recipient claims residency under that country’s tax laws.
Box 17: If the recipient is a participating FFI, registered-deemed compliant FFI, or other entity required to register on the IRS FATCA Registration System (webportal) and has obtained a Global Intermediary Identification Number (GIIN), the GIIN will be reported in box 17.
Box 18: If the recipient provided a Foreign Tax Identification Number (FTIN) to the fund, this number will be reported in box 18.
Box 19: The recipient account number is the account number assigned to your account by Franklin Templeton Investments.
Tax certifications of foreign individuals
Under U.S. Treasury regulations, unless a foreign individual has furnished the tax certifications required on the appropriate IRS Form W-8, the fund is generally required to apply backup withholding at 28% on all ordinary income dividends (including short-term capital gains and interest-related dividends), long-term capital gain distributions, tax-exempt interest dividends and gross redemption proceeds. Backup withholding is not an additional tax and any amounts withheld may be credited against the shareholder’s U.S. tax liability by providing the appropriate information to the IRS. The fund cannot refund backup withholding to shareholders.
If your account was subject to backup withholding in 2014, you will also receive a Form 1099-DIV, and, if applicable, Form 1099-B, each of which would reflect any amounts withheld.
Please refer to IRS Publication 519, U.S. Tax Guide for Aliens, and the 2014 IRS tax form instructions for additional information on U.S. income tax requirements. You can download IRS publications and forms from the IRS website. Please consult a tax advisor for guidance regarding your individual tax situation.
Important Legal Information
The information contained in this Tax Center is not intended to be a complete discussion of all federal or state income tax requirements. This information cannot be used by an investor to avoid any income tax penalties that may be imposed under the Internal Revenue Code. Investors should seek advice from a financial and/or tax advisor about the potential tax implications of their investments in Franklin Templeton fund(s) based on their individual circumstances.
You need Adobe Acrobat Reader 6.0 or higher to view and print PDF documents. Download a free version from Adobe's website.
For US residents only.
Clicking OK below will take you to an independent site. Information and services provided on this independent site are not reviewed by, guaranteed by, or endorsed by Franklin Templeton or its affiliates. Please keep in mind that this independent site's terms and conditions, privacy and security policies, or other legal information may be different from those of Franklin Templeton's site. Franklin Templeton is not liable for any direct or indirect technical or system issues, consequences, or damages arising from your use of this independent website.