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Date: 01/10/2023

U.S. Sourced Income

by THEVOZ & Partners

If you are not a U.S. citizen or US legal permanent resident alien (commonly known as “Green Card holders”) and you do not meet the substantial presence test, generally you are a nonresident alien (NRA) by the IRS for U.S. tax purposes. Unlike U.S. taxpersons, you are not required to pay US tax on incomes that you received from non-U.S. sources. However, you do need to pay taxes on incomes that you received from U.S. sources. As can be inferred, as a nonresident alien, it is very important for you to determine the sources of your income in order to determine your US 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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