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. References/Related Topics Source of Income - Personal Service Income Income Subject to NRA Withholding Pay for Personal Services Performed *Exceptions include: a) 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.
