Form 1042

Assuming he sold the shares acquired through ESPP as soon as he receicved them: In this case, the discount (difference between market price and discount price) is income and for a US employee is reported on W2. You also report the sale on Schedule D, but the cost basis and proceeds are almost the same so the short term gain is almost zero. To be exact, the proceeds will be the sale price of all the shares minus commissions and SEC fees, so the net loss on Schedule D would be something like $20 (but only in the case where you sell the shares as soon as they are vested).

Suppose the discount income is 10k. Does the 1042 show the discount income as 10k and the tax withheld as 2k? If yes, then it has the same information that a US employee W2 would have, so I suspect it would be OK to use it. Attach it to your return (as if it were a W2), and perhaps attach a statement to your return that you're making a good faith attempt -- trying to get them to issue a W2 but doesn't seem like they can do it in time, so you're attaching the 1042 as if it were a W2, and if they do manage to issue a W2 you will file an amended return with no changes but just to send the W2, and are trying to sort things out for next year.

How is his income from the employer reported? I suspect it is not on a W2. He does have to report this income, and in fact his entire worldwide income, on his 1040 but gets a foreign earned income credit of about 95k, as well as a credit for foreign tax paid on 1116, so there's a good chance he'll owe nothing to the US.

BTW, are you talking about 1042 or 1042S? What does the form look like?

He sold the shares withing a day or two. The purchase/sale and profit were reported on his local tax form, but (un)fortunately the dividend date was while he held the stock, so he made eight whole dollars, with the IRS deucting two. The form shows only that.

Sorry for delay in replying. I forgot about this thread.

For a US person, no tax is normally withheld on dividends, but they would have to report it on their tax return and pay taxes. For a non US person, tax withheld should normally be 30%. It seems you're saying that the tax withheld is 2/8%%, which is pretty close to 30%.

If the company mistook him for a non US person, no problem. He already has $2 in tax paid for him. I would add the tax in line 64 of form 1040. To recap, the line number descriptions are:

1040 Line 64 = Federal income tax withheld from Forms W-2 and 1099 1040-NR Line 59 = Federal income tax withheld from Forms W-2, 1099, 1042-S, etc. 1040 line 64 is similar to 1040-NR line 59. Since your friend is a US person, he will only file form 1040, and he should include payments on 1042-S on line 64.

It would be a good idea to attach 1042-S with your return (just as if it were a W-2), perhaps with the letter of explanation as in my previous post. If the 1042-S does not show his social security number, then definitely attach the 1042-S.

Does it have the same fields as 1042 or 1042s? Does it have his social security number on it?