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Section 8 Support for 1042-S Changes - Functional1042-S ProcessingSee the chart under Processing for the Benefit/Deduction Rule Form(PTRBDCA) for more information on implementation of the new DeductionTypes 21 and 22.Note: To report the new Deduction Type 21, verify the inclusion of allbenefits/deductions with Deduction Types 04 and 21 in the TaxReporting Rules Form (PXAREPT) for Tax Report codes W2, TDUG and1042.1042 Magnetic Tape Process (PXPMT42)The 1042 Magnetic Tape Process (PXPMT42) generates a magnetic tape for thetransmission of Form 1042-S (Foreign Person's U.S. Source Income Subject toWithholding). The Recipient ‘Q’ Record has been modified to print Unknownwhen Recipient Code 20 is used. Accordingly, the Recipient’s address also remainsblank.1042-S ProcessingWhen United States resident and non-resident aliens receive income from U.S.sources, it is subject to U.S. taxation unless it is explicitly exempted by United Statescode or tax treaty agreements. The United States currently has tax treaty agreementswith about forty nations. These treaties typically provide U.S. non-citizens withreduced tax rates or exemption from income taxes on certain types and levels ofincome received from U.S. sources. For citizens of countries with which there is notax treaty, the U.S. tax code includes statutory requirements governing differentincome types.The new Deduction Type 21- Foreign Persons State Tax-1042S Reportable, allows forthe distinction of state tax withheld on nonresident alien income when the statehonors Federal Treaties.The new Deduction Type 22 - Foreign Persons State Treaty Exempted, allows for theaccumulation and tracking of nonresident alien income within the TreatyAllowance.When a Treaty Allowance is greater than zero, the association of Deduction Type 22to Type 21 will allow for the accumulation of income within the Federal TreatyAllowance (Type 22) and then the state taxation of income over the Federal TreatyAllowance (Type 21). There should be no association on the Type 22 record.Warning: The statutory regulations (for citizens of countries with which there is notax treaty) and the tax treaty regulations are very complex and are subjectto site interpretation. Before determining the tax liability of yournon-citizen employees, give careful study to all applicable tax laws.Human Resources/Position Control Release 7.0 January 2005142 Release Guide Confidential