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Nonresident Aliens – Source of Income

A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income. The general rules for determining U.S. source income that apply to most nonresident aliens are shown below:

A detailed discussion of the general rules is provided in Chapter Two of Publication 519, U.S. Tax Guide for Aliens.

Summary of Source Rules for Income of Nonresident Aliens
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*
Rents Location of property
Royalties:
Natural resources
Location of property
Royalties:
Patents, copyrights, etc.
Where property is used
Sale of real property Location of property
Sale of personal property Seller’s tax home (but see Personal Property, in Chapter 2 of Publication 519, for exceptions)
Pensions Where services were performed that earned the pension
Scholarships – Fellowships Generally, the residence of the payer
Sale of natural resources Allocation based on fair market value of product at export terminal. For more information, see IRC section 1.863–1(b) of the regulations.
*Exceptions include:
a) Dividends paid by a U.S. corporation are foreign source if the corporation elects the Puerto Rico economic activity credit or possessions tax credit.
b) 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.

References/Related Topics

  • Source of Income – Personal Service Income
  • Income Subject to NRA Withholding
  • Pay for Personal Services Performed
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