US Tax for Nonresident Aliens US Tax for Nonresident Aliens

Source of Income

Nonresident aliens are taxed only on their in-come from sources within the United States and on certain income connected with the conduct of a trade or business in the United States.

cA nonresident alien’s income that is subject to U.S. income tax must be divided into two categories.

  1. Income that is effectively connected with a trade or business in the United States, and
  2. Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later).

The general rules for determining U.S. source income that apply to most nonresident aliens are shown in Table 2-1. The following discussions cover the general rules as well as the exceptions to these rules.

Item of incomeFactor determining source
Salaries, wages, other compensationWhere services performed
Business income: Personal services Sale of inventory—purchased Sale of inventory—produced  Where services performed Where sold Where produced
InterestResidence of payer
DividendsWhether a U.S. or foreign corporation*
RentsLocation of property
Royalties: Natural resources Patents, copyrights, etc.  Location of property Where property is used
Sale of real propertyLocation of property
Sale of personal propertySeller’s tax home (but see Personal Property, later, for exceptions)
Pension distributions attributable to contributionsWhere services were performed that earned the pension
Investment earnings on pension contributionsLocation of pension trust
Sale of natural resourcesAllocation based on fair market value of product at export terminal. For more information, see section 1.863-1(b) of the regulations.
* Exceptions include: Part of a dividend paid by a foreign corporation is U.S. source if at least 25% of the corporation’s gross income is effectively connected with a U.S. trade or business for the 3 tax years before the year in which the dividends are declared. Special rules apply for dividend equivalent payments.

Interest Income


Guarantees of Indebtness

Personal Services