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.
- Income that is effectively connected with a trade or business in the United States, and
- 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 income | Factor determining source |
| Salaries, wages, other compensation | Where services performed |
| Business income: Personal services Sale of inventory—purchased Sale of inventory—produced | Where services performed Where sold Where produced |
| Interest | Residence of payer |
| Dividends | Whether a U.S. or foreign corporation* |
| Rents | Location of property |
| Royalties: Natural resources Patents, copyrights, etc. | Location of property Where property is used |
| Sale of real property | Location of property |
| Sale of personal property | Seller’s tax home (but see Personal Property, later, for exceptions) |
| Pension distributions attributable to contributions | Where services were performed that earned the pension |
| Investment earnings on pension contributions | Location of pension trust |
| Sale of natural resources | Allocation 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
Dividends
Guarantees of Indebtness
Personal Services
Withholding
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