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U.S. Sourced Income

Frequently Asked Questions

About U.S. Sourced Income

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Suppose you are not a U.S. citizen or U.S. legal permanent resident alien (commonly known as “Green Card holders”), and you do not meet the substantial presence test. In that case, generally, you are a nonresident alien (NRA) by the IRS for U.S. tax purposes. Unlike U.S. tax persons, you are not required to pay U.S. tax on incomes that you received from non-U.S. sources. However, you need to pay taxes on your income from U.S. sources. As can be inferred, as a nonresident alien, you need to determine your income sources to determine your U.S. tax. To assist taxpayers, the IRS has provided a chart that outlines the determining factors of the source of certain incomes.

Item of Income Factor  Determining Source
Salaries, wages, other compensation Where services performed
Business income: Personal Services Where services performed
Business income: sale of inventory-purchased Where sold
Business income: sale of inventory-produced Where produced (allocation may be necessary)
Interest Residence of payer
Dividends  Whether a U.S. or foreign corporation-(exception 25% look-thru look)
Rent Location of the property
Royalties: Natural resources Location of the property
Royalties: Patents, copyrights, etc. Where property is used
Sale of real property Location of the property
Sale of personal property Seller’s tax home (exceptions may apply)
Pensions Where the services were performed that earned the pension
Scholarship-Fellowships Generally, the residence of the payer
Sale of natural resources Allocation based on fair market value of product at export terminal.

For most types of U.S. source income, the receiving foreign person is subject to a 30% percent withholding tax. The distributing entity or agent is required to withhold that tax. However, sometimes, a reduced rate may apply if the Internal Revenue Code provides for a lower rate or a tax treaty between the foreign person’s country of residency and the United States is applicable. In that case, as an individual, you may ask for a lower rate by filing Form W-8BEN, Certificate of Foreign Status of Beneficiary Owner for United States Tax Withholding and Reporting (individuals). Do you receive U.S.-sourced income? Would you like to know if a lower rate is applicable?

THEVOZ & Partners specializes in the area of Tax Law

This area of law is particularly complex and requires a high level of training. For this reason, our attorneys train continuously and hold a significant amount of experience in the field of tax law. THEVOZ & Partners is a law firm with offices in Austin and Lausanne specializing in the provision of tax and legal services to individuals and companies in the United States and Europe. We help clients navigate a litany of domestic and international tax issues ranging from compliance to planning and even litigation. We understand that each client has unique needs and goals, and we pride ourselves on taking a personalized approach to tailor our services to meet those needs.