Source of Income
Nonresident aliens are taxed only on their in-come from sources within the United States and on certain income connected with the conduct of a trade or business in the United States.
cA nonresident alien’s income that is subject to U.S. income tax must be divided into two categories.
- Income that is effectively connected with a trade or business in the United States, and
- Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later).
The general rules for determining U.S. source income that apply to most nonresident aliens are shown in Table 2-1. The following discussions cover the general rules as well as the exceptions to these rules.
|Item of income||Factor determining source|
|Salaries, wages, other compensation||Where services performed|
|Business income: Personal services Sale of inventory—purchased Sale of inventory—produced||Where services performed Where sold Where produced|
|Interest||Residence of payer|
|Dividends||Whether a U.S. or foreign corporation*|
|Rents||Location of property|
|Royalties: Natural resources Patents, copyrights, etc.||Location of property Where property is used|
|Sale of real property||Location of property|
|Sale of personal property||Seller’s tax home (but see Personal Property, later, for exceptions)|
|Pension distributions attributable to contributions||Where services were performed that earned the pension|
|Investment earnings on pension contributions||Location of pension trust|
|Sale of natural resources||Allocation based on fair market value of product at export terminal. For more information, see section 1.863-1(b) of the regulations.|
|* Exceptions include: 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. Special rules apply for dividend equivalent payments.|
Guarantees of Indebtness