U.S. Sourced Income
Frequently Asked Questions
About U.S. Sourced IncomeBack to Tax Services
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?
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