This page contains information about selected terms and concepts used in SOI's Foreign Recipients of U.S. Income Study articles and tables.
Please visit Foreign Recipients of U.S. Income Statistics to access these articles and tables.
In general, the beneficial owner is the person who is required under U.S. tax principals to include the income in gross income on a tax return. A person is not a beneficial owner of income, to the extent that person is receiving the income as a nominee, agent, or custodian, or to the extent the person is a conduit whose participation in a transaction is disregarded.
This income category includes income identified as dividends qualifying for a direct dividend rate; dividends paid by foreign corporations; and dividends paid by U.S. corporations – general.
Foreign persons include: (a) individuals whose residence is not within the United States and who are not U.S. citizens (i.e., nonresident aliens); and (b) corporations and other organizations (including partnerships, private foundations, estates, and trusts) created or organized outside the United States. Individuals residing, and organizations created or organized, in Puerto Rico and U.S. possessions are also considered foreign persons.
This income category includes income identified as interest paid on real property mortgages; interest paid to controlling foreign corporations; interest paid by foreign corporations; interest on tax-free covenant bonds; deposit interest; original issue discount (OID); short-term OID; and interest paid by U.S. obligors - general.
Notional Principal Contract Income
Notional principal contracts involve two parties who agree contractually to pay each other amounts at specified times, based on the underlying contract. The notional amount is an amount specified in the contract and based on which, certain calculations are made. Generally, when amounts are due under the contract at the same time, they are netted and only one payment is made.
Personal services income
This income category includes income identified as compensation for independent personal services; compensation for dependent personal services; compensation for teaching; and compensation for studying and training.
Qualified Intermediary Pool
Payments made by a qualified intermediary directly to beneficial owners may generally be reported on the basis of reporting pools. A reporting pool consists of income that falls within a particular withholding rate and within a particular income type, exemption type, or recipient type.
Rents and royalties
This income category includes income identified as industrial royalties; motion picture or television copyright royalties; other royalties (for example, copyright, recording, publishing); and real property income and natural resources royalties.
Social security and railroad retirement payments
This income category includes income identified as social security benefits; railroad retirement (Tier 1) benefits; and railroad retirement (Tier 2) benefits.
U.S. Source Income Exempt from Withholding
U.S. source income paid to foreign persons and reported on Form 1042S may be exempt from withholding tax for any of the following reasons: (a) income is effectively connected with a U.S. trade or business; (b) income is exempt under a tax treaty; (c) income is portfolio interest; (d) income is paid through a withholding foreign partnership or foreign trust; (e) the recipient is a U.S. branch treated as a U.S. person for tax purposes; and (f) income is exempt under an Internal Revenue Code section.
U.S. Source Income Subject to Withholding
Amounts subject to withholding are amounts from sources within the United States that constitute (a) fixed or determinable annual of periodical (FDAP) income; (b) certain gains from the disposal of timber, coal, or domestic iron ore with a retained economic interest; and (c) gains relating to contingent payments received from the sale or exchange of patents, copyrights, and similar intangible property. Amounts subject to withholding also include distributions of effectively connected income by a publicly traded partnership.