Foreign investors who earn dividends from US stocks or ETFs often receive Form 1042-S from their broker. This form shows your US income and the tax that was withheld. If you live outside the United States and earn this type of income, you may need an ITIN to manage your tax situation properly.

This guide explains the full ITIN process for investors.
We include two real-life style examples:

  • a Chilean investor who receives treaty benefits

  • a non-treaty investor who does not

A full visual diagram is also included.

What Is Form 1042-S?

Form 1042-S is issued to non-US persons who receive US-source income. It confirms:

  • You are not a US tax resident

  • You received income from the United States

  • Tax was withheld at the source

  • The income type (dividends, interest, royalties, etc.)

If you receive a 1042-S, you can apply for an ITIN using Exception 1 (Passive Income).

This is the simplest category for investors.

Why Do Investors Need an ITIN?

Foreign investors usually apply for an ITIN for one or more of these reasons:

  1. To file a 1040-NR tax return

  2. To claim a tax refund if the withholding was too high

  3. To update the W-8BEN form with a valid tax ID

  4. To apply tax treaty benefits (if your country has one)

  5. To maintain compliance with your broker

Example 1: With US Tax Treaty

Abiezer is a Chilean investor.
Chile has a tax treaty with the United States.

He received Form 1042-S showing his US dividend income.
He now needs an ITIN so he can:

  • Update his W-8BEN
    (the W-8BEN tells the broker your tax residency; once he has an ITIN, the broker can apply treaty benefits correctly and may reduce future withholding)

  • File a 1040-NR if he wants to check for any refund

  • Maintain compliance for future investments

Once his ITIN is issued, his broker can apply the treaty rate more accurately.

Example 2: Without US Tax Treaty

A Philippine investor also receives Form 1042-S for US dividends.
But the Philippines does not have a tax treaty with the United States.

That means:

  • Dividend withholding stays at 30 percent

  • Most cases do not result in a refund

  • The ITIN is still allowed under Exception 1

  • The withholding rate does not automatically reduce

The ITIN still helps the investor file taxes or meet brokerage requirements.

Visual Diagram

┌────────────────────────┐
│ Foreign Investor        │
│ Non-US Resident         │
└──────────┬─────────────┘
│
▼
┌──────────────────────────────┐
│ Receives Form 1042-S         │
│ • US dividend income         │
│ • Tax withheld               │
│ • Confirms non-US status     │
└───────────┬──────────────────┘
│
▼
┌────────────────────────────────────────────┐
│ Use 1042-S for ITIN Exception 1            │
│ ✅ Accepted as evidence of US income       │
│ ✅ No tax return required with W-7         │
│ ✅ Best route for foreign investors        │
└───────────────────┬────────────────────────┘
│
▼
┌────────────────────────────────┐
│ Prepare ITIN Application       │
│                                │
│ Required documents:            │
│ • Passport (certified by CAA)  │
│ • W-7 Form                     │
│ • Exception 1 Letter           │
│ • Form 1042-S                  │
└────────────┬───────────────────┘
│
▼
┌──────────────────────────────┐
│ CAA Assembles Full Packet    │
│ • Certifies identity         │
│ • Prepares W-7               │
│ • Reviews 1042-S             │
└────────────┬─────────────────┘
│
▼
┌────────────────────────────┐
│ Submit to IRS Austin       │
│ via Certified Acceptance   │
│ Agent                      │
└────────────┬───────────────┘
│
▼
┌────────────────────────────┐
│ IRS Processing 6–13 weeks  │
└────────────┬───────────────┘
│
▼
┌────────────────────────────────────┐
│ IRS Issues ITIN Letter             │
│ • Sent to CAA                      │
│ • And to US address (if any)       │
└────────────────────────────────────┘

Treaty Countries vs Non-Treaty Countries

Country Treaty Status Dividend Withholding ITIN Effect
Chile (Example: Abiezer) ✅ Yes Treaty may reduce withholding Better rate after W-8BEN update
Philippines ❌ No Fixed at 30 percent No reduction, but ITIN still valid

Final Thoughts

If you are a foreign investor and you receive Form 1042-S, you already have the ideal document for an ITIN application. You can apply under Exception 1 without sending a full tax return.

Treaty or no treaty, the ITIN process stays simple.
The only difference is how much tax you save later.