U.S. Sourced Income
Frequently Asked Questions
About U.S. Sourced Income
Back to Tax ServicesSuppose 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?
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