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US Income Tax Withheld FromMexican Roads
May 8, 2014
George A. Jones - CSXT
Law
Law
Any person having the control, receipt, custody,disposal, or payment of specific items of income (a“withholding agent”) must deduct and withhold U.S.income tax from those items, to the extent they aregross income from U.S. sources of foreigners subjectto withholding. (IRC §1441(a)) The withholding agentis liable for the tax. (IRC § 1461)
U.S. Roads are withholding agents for Mexican Roadson Payable Car Hire.
Form 1042 – Reporting to IRS
Form 1042 – Reporting to IRS
Form 1042 is used to annually report tax withheld oncertain income of foreign persons, corporations, etc. toIRS
The 1042 form is an aggregate form for the year and laterwe will discuss the form 1042-S is a payee by payee form
Form 1042-S
Form 1042-S
Form 1042-S, Foreign Person’s U.S. Source IncomeSubject to Withholding, (Copy A) is filed with the Form1042, for each recipient from whom tax was withheld.Copies of Form 1042-S (Copy B, C & D) are alsomailed to the recipients from whom tax was withheld.A copy of each Form 1042-S (Copy E) is retained forour records.
Mexican Roads are informed of the amount of U.S.Tax that has been withheld for them for each reportingYear.
Form 1042-T
Form 1042-T
Form 1042-T, Annual Summary and Transmittal ofForm 1042-S, is used to transmit paper Forms 1042-Sto the Internal Revenue Service.
Form 1042-T is a summary of all U.S. Tax withheld forcompanies and roads.
Who Must File
Who Must File
Every withholding agent, person required to withhold tax,who receives, controls, has custody of, disposes of, orpays any fixed or determinable annual or periodic incomemust file an annual return for the preceding calendar year.
When and Where to File
When and Where to File
March 15th of current year for preceding calendar year
Ogden Service Center, PO Box 409101, Ogden, UT84409
Form 1042, Form 1042-S and Form 1042-T and theassociated instructions can be downloaded from theInternal Revenue Service’s website -http://www.irs.gov
Supporting Information
Supporting Information
Information from CSXT is supplied by Edward L.(Eddie) Weaver, II, Car Accounting Analyst, in theController’s Department – Car Accounting
Eddie provides a summary of Mexican Tax withheldfrom Appendix H as well as a summary of U.S. Taxdue on Car Hire paid to Mexican Roads.
Accounting Process
Accounting Process
Appendix H Reports are available on ShipCSX website
The Gross Car Hire amount is automatically bookedfrom the Car Accounting file
The tax amount withheld from Mexican roads for theIRS is deducted from the Gross Car Hire and appliedto the Foreign Mexican Tax Account
Car Accounting authorizes Accounts Payable to maketax deposit to the IRS via wire
Understanding the process
Understanding the process
CSX settles Car Hire on a regular basis with sixMexican Railroads
Both United States and Mexican Governments requiretax withholding when settling Car Hire overInternational borders
Tax withholding on Car Hire payments is 10% in theU.S. payable to IRS and 5% in Mexico payable to theMexican equivalent of the IRS
Net settlement for Car Hire between Railroads is anautomated process handled via RCH (RailroadClearinghouse).
Positive payable report to Mexican Road from CSX Transportationcalculated correctly- Note 10% withholding payable to the United States IRS
Positive payable report to Mexican Road from CSX Transportationcalculated correctly- Note 10% withholding payable to the United States IRS
APPENDIX H
CSXT CSXT TRANSPORTATION
SUMMARY OF AMOUNTS DUE FOR CAR HIRE FREIGHT CARS, TRAILERS AND RELATED COSTS
PAYABLE TO: MEXICAN MAIN RAILROAD
CSX TRANSPORTATION
JACKSONVILLE FL
FOR EQUIPMENT OF MEXICAN MAIN RAILROAD MONTH OF Oct, 2013 CSXT
ITEM NAME
ACCOUNT*
(A)
(B)
(A)-(B)
TYPE
DESC
PAYMENT
DEDUCTION
NET
CAR HIRE RULES 1/11-1T/11T
010
CURRENT
01
$1,500.00
$0.00
$1,500.00
FIRST ADJ.
02
PRIOR
03
PENALTY
01,02,03
CAR HIRE OTHER
CAR HIRE MISCELLANEOUS
024
ANY
RULE 4
040
07,08,09
RULE 8
080
07,08,09
RULE 15
150-151
07,08,09
RULE 16
160
07,08,09
RULE 21 ELIMINATED
210-215
01,02,03
RULE 22
220-225
07,08,09
$500.00
($500.00)
RULE 23
230
07,08,09
MISCELLANEOUS
SPECIAL
400
07,08,09
CONTRACTS
450
07,08,09
RESERVED
500-550
07,08
ORIGIN DETENTION
820
DESTINATION DETENTION
825
OT-5
850
07,08,09
GROSS TOTALS
$1,500.00
$500.00
$1,000.00
TAX
860
$0.00
$100.00
($100.00)
NET GRAND TOTAL
$1,500.00
$600.00
$900.00
10% tax withheld
10% tax withheld
Positive payable report to CSX from Mexican Main Railroadcalculated correctly- Note 5% withholding payable to the Mexican IRS
Positive payable report to CSX from Mexican Main Railroadcalculated correctly- Note 5% withholding payable to the Mexican IRS
APPENDIX H
MMRD MEXICAN MAIN RAILROAD
SUMMARY OF AMOUNTS DUE FOR CAR HIRE FREIGHT CARS, TRAILERS AND RELATED COSTS
PAYABLE TO: CSX TRANSPORTATION INC.
MEXICAN MAIN RAILROAD
MEXICO CITY
FOR EQUIPMENT OF CSX TRANSPORTATION MONTH OF Oct, 2013 CSXT
ITEM NAME
ACCOUNT*
(A)
(B)
(A)-(B)
TYPE
DESC
PAYMENT
DEDUCTION
NET
CAR HIRE RULES 1/11-1T/11T
010
CURRENT
01
$1,000.00
$0.00
$1,000.00
FIRST ADJ.
02
PRIOR
03
PENALTY
01,02,03
CAR HIRE OTHER
CAR HIRE MISCELLANEOUS
024
ANY
RULE 4
040
07,08,09
RULE 8
080
07,08,09
RULE 15
150-151
07,08,09
RULE 16
160
07,08,09
RULE 21 ELIMINATED
210-215
01,02,03
RULE 22
220-225
07,08,09
RULE 23
230
07,08,09
MISCELLANEOUS
SPECIAL
400
07,08,09
CONTRACTS
450
07,08,09
RESERVED
500-550
07,08
ORIGIN DETENTION
820
DESTINATION DETENTION
825
OT-5
850
07,08,09
GROSS TOTALS
$1,000.00
$0.00
$1,000.00
TAX
860
$0.00
$50.00
($50.00)
NET GRAND TOTAL
$1,000.00
$50.00
$950.00
5% tax withheld
5% tax withheld
Settlement of Car Hire between CSXT andMMRD in this scenario…
Settlement of Car Hire between CSXT andMMRD in this scenario…
Payment would settle on a net basis between bothAppendix H reports through the automated RCHprocess and CSX would receive a net payment of$50.00
Receivables are available on the 18th of each monthand RCH payment is due a few days later accordingly.
Negative Payable Reports
Negative Payable Reports
“Negative Payable” reports between U.S. and MexicanRailroads are a common occurrence when reclaims aregreater than liable Car Hire. A Payable report to anyparticular road would effectively become a Receivable forthe issuing Road. When calculated correctly, Roadsshould report the tax accordingly to allow for the payingRailroad to withhold tax. Payment settles regularly in areverse fashion through RCH payment process.
Example of a Negative Payable Report with TaxWithholding
Example of a Negative Payable Report with TaxWithholding
APPENDIX H
CSXT CSXT TRANSPORTATION
SUMMARY OF AMOUNTS DUE FOR CAR HIRE FREIGHT CARS, TRAILERS AND RELATED COSTS
PAYABLE TO: MEXICAN MAIN RAILROAD
CSX TRANSPORTATION
JACKSONVILLE FL
FOR EQUIPMENT OF MEXICAN MAIN RAILROAD MONTH OF Oct, 2013 CSXT
ITEM NAME
ACCOUNT*
(A)
(B)
(A)-(B)
TYPE
DESC
PAYMENT
DEDUCTION
NET
CAR HIRE RULES 1/11-1T/11T
010
CURRENT
01
$7,000.00
$0.00
$7,000.00
FIRST ADJ.
02
PRIOR
03
PENALTY
01,02,03
CAR HIRE OTHER
CAR HIRE MISCELLANEOUS
024
ANY
RULE 4
040
07,08,09
RULE 8
080
07,08,09
RULE 15
150-151
07,08,09
RULE 16
160
07,08,09
RULE 21 ELIMINATED
210-215
01,02,03
RULE 22
220-225
07,08,09
$8,000.00
($8,000.00)
RULE 23
230
07,08,09
MISCELLANEOUS
SPECIAL
400
07,08,09
CONTRACTS
450
07,08,09
RESERVED
500-550
07,08
ORIGIN DETENTION
820
DESTINATION DETENTION
825
OT-5
850
07,08,09
GROSS TOTALS
$7,000.00
$8,000.00
($1,000.00)
TAX
860
$50.00
$0.00
$50.00
NET GRAND TOTAL
$7,050.00
$8,000.00
($950.00)
5% tax withheld
5% tax withheld
Incorrect calculation of tax from Mexican Roads onnegative payable Appendix H reports
Incorrect calculation of tax from Mexican Roads onnegative payable Appendix H reports
A small number of Mexican Railroads currently fail toinclude tax withholding on negative payable AppendixH reports to American Roads.
Net payment settles through the RCH process and taxis not calculated or withheld by the American Roadgiven the timeline and nature of RCH paymentsettlement.
The Mexican Road claims the full Gross amountdetailed on Appendix H report and is then responsiblefor settling taxes owed to the U.S. IRS in this scenario.
Mexican Negative Payable report without taxwithholding
Mexican Negative Payable report without taxwithholding
APPENDIX H
MXXX MEXICAN NATIONAL RAILROAD
SUMMARY OF AMOUNTS DUE FOR CAR HIRE FREIGHT CARS, TRAILERS AND RELATED COSTS
PAYABLE TO: CSX TRANSPORTATION
MEXCIAN NATIONAL RAILROAD
MEXICO CITY
FOR EQUIPMENT OF CSX TRANSPORTATION MONTH OF Oct, 2013 CSXT
ITEM NAME
ACCOUNT*
(A)
(B)
(A)-(B)
TYPE
DESC
PAYMENT
DEDUCTION
NET
CAR HIRE RULES 1/11-1T/11T
010
CURRENT
01
$5,000
$0.00
$5,000
FIRST ADJ.
02
PRIOR
03
PENALTY
01,02,03
CAR HIRE OTHER
CAR HIRE MISCELLANEOUS
024
ANY
RULE 4
040
07,08,09
RULE 8
080
07,08,09
RULE 15
150-151
07,08,09
RULE 16
160
07,08,09
RULE 21 ELIMINATED
210-215
01,02,03
RULE 22
220-225
07,08,09
$15,000
($15,000)
RULE 23
230
07,08,09
MISCELLANEOUS
SPECIAL
400
07,08,09
CONTRACTS
450
07,08,09
RESERVED
500-550
07,08
ORIGIN DETENTION
820
DESTINATION DETENTION
825
OT-5
850
07,08,09
GROSS TOTALS
$5,000
$15,000
($10,000)
TAX
860
$0.00
$0.00
$0.00
NET GRAND TOTAL
$5,000
$15,000
($10,000)
No tax withheld
No tax withheld
Foreign Tax Credit
Foreign Tax Credit
If certain criteria are met, most U.S. taxpayers who payincome taxes to foreign governments may deduct thosetaxes for U.S. income tax purposes, or the taxpayer mayelect to credit the foreign tax payments against their U.S.income tax liability dollar-for-dollar as a foreign tax credit.(IRC § 901; Reg § 1.901-1(a)). (IRC § 27, IRC § 164). If atax credit is claimed for any foreign income taxes,deductions may not be claimed for other foreign incometaxes (Reg § 1.901-1(c)).
Questions?
Questions?
The intent was not to make you a tax expert, but togive a high level view of the U.S. Tax requirement.
Please consult your Tax Advisor for your specific taxrequirements.