What Is Income Code 24 on Form 1042-S?

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June 27, 2026·9 min read·Withholding Mechanics

If you pay a foreign person any US-source income, you almost certainly have to report it to the IRS on Form 1042-S — and the first thing the form asks for, in Box 1, is a two-digit income code. People often arrive at this question because they were told "income code 24 is director's fees." On the current Form 1042-S, that is not correct. This article explains what code 24 actually means today, walks through the codes a small payor is most likely to use, and shows how to choose the right one.

First, what Form 1042-S is (and how it differs from Form 1042)

Form 1042-S, "Foreign Person's U.S. Source Income Subject to Withholding," is a per-payee, per-income-type statement. You file one (and give a copy to the recipient) for each foreign person you paid US-source income to, and for each distinct type of income, showing the gross amount paid and the tax you withheld. Think of it as the foreign-payee analog of the Form 1099 you would issue to a US contractor.

Form 1042, "Annual Withholding Tax Return for U.S. Source Income of Foreign Persons," is the summary return. You file one Form 1042 for the whole year, and it reconciles the total tax liability and deposits against the sum of all the Forms 1042-S you issued. In short: 1042-S reports the detail per payee; 1042 reports and pays the total. The two have to tie out, which is one reason the income code on each 1042-S matters — the IRS matches the pieces against the whole.

These are separate from the more familiar W-2/1099 system. US-source income paid to a foreign person is generally FDAP income (fixed or determinable annual or periodical income) subject to a default 30% withholding under Internal Revenue Code §§1441–1442 unless a treaty or Code provision reduces it.

What income code 24 actually represents today

Per the current Instructions for Form 1042-S (Appendix A, "Box 1 Income Codes," verified against both the 2025 and 2026 instructions):

24 — Qualified investment entity (QIE) distributions of capital gains.

A qualified investment entity is, broadly, a US real estate investment trust (REIT) or certain regulated investment companies. Code 24 is used when such an entity distributes capital gains to a foreign shareholder — a fairly specialized situation tied to the rules under IRC §897 (FIRPTA) and §1445. It has nothing to do with paying a foreign board member.

This matters because of a common myth. Older reference material — and some internal notes — describe income code 24 as "director's fees." That is out of date: the current IRS income-code table does not assign code 24 to director's fees, and in fact there is no dedicated income code for director's fees at all on today's Form 1042-S. If you came here to report a payment to a foreign company director, code 24 is the wrong box. See "How director's fees are actually reported," below. When in doubt, trust the current Form 1042-S instructions over any third-party crosswalk.

The income codes a small payor actually encounters

You will never use most of the 50-plus income codes — many cover interest instruments, trust distributions, and partnership mechanics that small payors rarely touch. Here are the ones that come up most often, with the exact current descriptions from the Form 1042-S instructions (Appendix A):

Two things to flag from the official notes attached to that table:

• Codes 17–20 give way to 42/43 for performers. The instructions say plainly that if compensation otherwise covered by income codes 17 through 20 is directly attributable to the recipient's occupation as an artist or athlete, you must use income code 42 or 43 instead. So a UK software contractor is code 17, but a UK touring musician is code 42 (or 43 if an IRS central withholding agreement is in place).
• Code 23 ("Other income") is a last resort. The instructions direct that income code 23 "should be used only to" report income that does not fit under any other available code. Reaching for 23 because you are unsure is a frequent mistake — see common errors below.

How director's fees are actually reported

Because there is no director's-fees income code, fees paid to a foreign person for serving on a company's board are reported under the personal-services codes. A non-employee director is generally an independent service provider, so the fee is typically reported under income code 17 (Compensation for independent personal services); if the director is treated as an employee, code 18 (dependent personal services) applies instead. (The treaty analysis for director's fees — whether a treaty's Directors' Fees article reduces the 30% rate — is a separate question from the reporting code; see article_director_fees_five_patterns.md.)

How to determine the right income code

The income code follows the character of the payment — what you paid for — not who you paid or which form they gave you. A practical order of operations:

1. Classify the payment. Is it a royalty, a service fee, a dividend, interest, a scholarship, a prize? That answer points to a family of codes. For example, "Acme Studios" paying a German producer for the right to stream a film is a royalty (code 11 or 12), while paying that same producer to direct an on-set shoot in Los Angeles is a personal service (code 17).
2. Pick the most specific code in that family. Royalties split across codes 10/11/12/13/14; services split across 17/18/19/20. Use the narrowest code that fits — not the catch-all.
3. Apply the override rules. Performer/athlete income jumps to 42/43 even if it "looks like" services. Only fall to code 23 ("Other income") if nothing else genuinely applies.
4. Confirm US source. Form 1042-S is for US-source income. Services performed entirely outside the US, for instance, are generally foreign-source and reported differently (or not subject to this withholding at all).

The other boxes that travel with the income code

The income code does not stand alone. The same Form 1042-S carries:

• Box 2 — Gross income: the total amount paid, before withholding (not the net check).
• Box 3 / Box 4 — Chapter 3 vs. Chapter 4: you enter "3" or "4" to show which withholding regime applies. Chapter 3 is the traditional NRA/treaty withholding on FDAP; Chapter 4 is FATCA withholding tied to a payee's documentation status. Most small-payor payments to a documented foreign person run under Chapter 3.
• Boxes 3b / 4b — Tax rate: the rate actually applied (e.g., 30.00, or 00.00 where a treaty or exemption zeroes it out).
• Boxes 3a / 4a — Exemption code: when the rate is 00.00, you must enter the reason — for example, exemption code 04 (Exempt under tax treaty) for a valid treaty claim, or 02 (Exempt under the Internal Revenue Code).
• Box 13 — Recipient information, including the recipient's country code, which drives whether a claimed treaty even exists and supports the rate you used.

The income code has to be internally consistent with these: the code describes what you paid, the rate and exemption code describe how much you withheld and why, and the country supports the treaty claim behind the rate.

Common reporting errors

• Wrong income code (character mismatch). Reporting a software royalty as "Other income" (23), or a contractor's fee as a royalty. The code must reflect the true nature of the payment; defaulting to 23 is the classic example.
• Using a retired/incorrect code. Putting director's fees under code 24 (which is QIE capital-gain distributions today) is exactly this kind of error — it sends a meaningless signal to the IRS and to the payee.
• Rate/exemption-code mismatch. Entering a 00.00 rate with no exemption code, or an exemption code that contradicts the rate (e.g., claiming "exempt under tax treaty" while still showing 30%). If you reduce the rate, the exemption code must justify it.
• Chapter 3 vs. Chapter 4 confusion. Marking a payment under the wrong chapter, or applying a treaty rate to income that should have run through FATCA documentation.
• Gross-vs-net in Box 2. Reporting the net payment instead of the gross income.

Why it matters

The income code is how the IRS understands what kind of money a foreign person received from the US — and it must match the actual character of the payment. A mismatch has real consequences on both sides:

• For you (the payor): an income code that is inconsistent with the rate, exemption code, or your Form 1042 totals is a frequent trigger for IRS notices and proposed adjustments. Getting it wrong can also expose you to liability for tax you should have withheld.
• For your payee: the figures on Form 1042-S flow into the foreign person's US tax filing (and any treaty-based refund claim). A wrong income code can misstate the character of their income, complicate or delay a refund, and force corrected filings.

Because the code drives so much downstream, treat classification as the first decision, not an afterthought — and verify the current meaning of any code against the live Form 1042-S instructions before you file, since the code-to- meaning mapping has changed over the years (income code 24 being a prime example).

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This article is for general educational purposes and is not legal or tax advice. Withholding outcomes depend on the specific facts of each payment. Consult a qualified tax professional before making withholding decisions.