Nonresident aliens are only subject to U.S. taxation on income from U.S. sources. Foreign-sourced income received by nonresident aliens is not subject to U.S. taxation. This is unlike resident aliens who are taxed on worldwide income (income from both U.S. and foreign sources).
Generally, U.S.-sourced income includes all income received from U.S. organizations or individuals and compensation received from both U.S. and foreign organizations or individualsfor work performed in the U.S.
Income is considered foreign-sourced if the location of the activity for which the payment is being issued is not in the U.S.
If the source is unclear at the time of payment, the payment is treated as U.S.-sourced income and taxed accordingly.
Type 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 (some exceptions) |
Rents and Sale of real property | Location of property |
Royalties: Patents, copyrights, etc. | Where property is used |
Sale of personal property | Seller's tax home (some exceptions) |
Pensions | Where services were performed that earned the pension |
Scholarships - Fellowships | Generally, the residence of the payer |
Additional information on U.S.-sourced income can be found in Chapter 2 of IRS Publication 519.
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