If you are not a U.S. citizen or US legal permanent resident alien (commonly known as “Green Card holders”) and you do not meet the substantial presence test, generally you are a nonresident alien (NRA) by the IRS for U.S. tax purposes. Unlike U.S. taxpersons, you are not required to pay US tax on incomes that you received from non-U.S. sources. However, you do need to pay taxes on incomes that you received from U.S. sources. As can be inferred, as a nonresident alien, it is very important for you to determine the sources of your income in order to determine your US tax. To assist taxpayers, the IRS has provided a chart that outlines the determining factors of the source of certain incomes.
| 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-(exception 25% look-thru look) |
| Rent | Location of the property |
| Royalties: Natural resources | Location of the property |
| Royalties: Patents, copyrights, etc. | Where property is used |
| Sale of real property | Location of the property |
| Sale of personal property | Seller’s tax home (exceptions may apply) |
| Pensions | Where the services were performed that earned the pension |
| Scholarship-Fellowships | Generally, the residence of the payer |
| Sale of natural resources | Allocation based on fair market value of product at export terminal. |
For most types of U.S. source income, the receiving foreign person is subject to a 30% percent withholding tax. The distributing entity or agent is required to withhold that tax. However, sometimes, a reduced rate may apply if the Internal Revenue Code provides for a lower rate, or a tax treaty between the foreign person’s country of residency and the United States is applicable. In that case, as an individual, you may ask for a lower rate by filing Form W-8BEN, Certificate of Foreign Status of Beneficiary Owner for United States Tax Withholding and Reporting (individuals). Do you receive U.S.-sourced income? Would you like to know if a lower rate is applicable?