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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:

See Chapter Two of Publication 519, U.S. Tax Guide for Aliens for additional details.

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

Page Last Reviewed or Updated: 13-Feb-2014