The U.S. tax system can be tricky – especially if you’re a nonresident.
Whether you’re earning money, investing in stocks, or just visiting and happen to win at a casino, it’s important to understand what kind of taxes you might need to pay.
Who this guide is for:
- This blog is written for foreign nationals who are living, working, studying, or earning income in the United States – people like international students, J-1 exchange visitors, temporary workers, and non-U.S. residents with U.S.-sourced income.
- It is not written for U.S. citizens or green card holders living abroad. If you’re an American expat trying to understand your overseas tax obligations, you’ll need different guidance – the IRS taxes U.S. citizens on their worldwide income regardless of where they live, which is a separate set of rules entirely.
In this guide, we’ll break down everything you need to know about income taxes in the U.S. as a nonresident and how Sprintax can help you stay compliant and get any tax refund you may be due!
Who is considered a “foreigner” for U.S. tax purposes?
The word “foreigner” gets used loosely, but for U.S. tax purposes it has a specific meaning – and it’s not simply about your passport or nationality.
The IRS divides everyone into two tax categories: resident aliens and nonresident aliens (NRAs). Both are “foreign nationals,” but they are taxed very differently.
Nonresident aliens (NRAs) are foreign nationals who do not meet the IRS’s residency tests.
This is the group most commonly associated with the word “foreigner” in a U.S. tax context. Most international students on F, J, M, or Q visas fall into this category for their first few years in the U.S. Short-term workers and visitors typically do too.
Resident aliens are foreign nationals who do meet IRS residency standards.
This can happen because they hold a green card (the Green Card Test), or because they’ve spent enough time in the U.S. to trigger the Substantial Presence Test – generally, 183 days or more in the current year when calculated using a weighted three-year formula. Once you’re classified as a resident alien, you’re taxed much like a U.S. citizen: on your worldwide income, using the same tax forms (Form 1040), and with access to the standard deduction.
So not every foreigner is a nonresident alien, and the distinction matters enormously for how much tax you owe and what forms you file.
Not sure which category you fall into?
Sprintax will determine your correct residency status automatically.
Understanding U.S. tax residency
The first step to figuring out your tax responsibilities in the U.S. is understanding whether you’re a resident or nonresident for tax purposes.
The IRS uses the substantial presence test and visa type to determine your residency status.
Most international students on F, J, M, or Q visas are considered nonresidents for their first few years in the U.S.
Short-term workers and other visitors often fall into the nonresident category as well.
Not sure about your residency status? Sprintax will determine your correct status automatically.
What is an ITIN and do foreigners need one?
If you’re not eligible for a Social Security Number (SSN) but still need to file a tax return, you’ll need to apply for an Individual Taxpayer Identification Number (ITIN).
An ITIN is required to:
- File a tax return (Form 1040-NR)
- Claim tax treaty benefits for certain types of income
- Receive a tax refund
- Report income to the IRS
Not sure how to get an ITIN?
Sprintax Returns can help you apply for your ITIN when you’re preparing your tax return!
Furthermore, check out this blog on how to apply for an ITIN from outside the U.S.
Do foreigners pay taxes in the U.S.?
Yes, if you earn U.S.-sourced income as a nonresident, you’re generally required to pay tax on it. But how you’re taxed depends heavily on what type of income you receive. There are two main tax regimes that apply to nonresident aliens, and they can result in very different tax bills.
Effectively Connected Income (ECI) – taxed at progressive rates
Income that is directly connected to a U.S. trade or business is called Effectively Connected Income (ECI). This is taxed at the same graduated federal rates that apply to U.S. residents. ECI typically includes:
- Wages from a U.S. employer
- Scholarship or grant income (in some cases)
- Rental income (if you elect to treat it as ECI)
- Business or freelance income from U.S. clients
The 2026 federal income tax rates for ECI are:
| Income | Tax rate |
|---|---|
| $0 to $12,400 | 10% |
| $12,401 to $50,400 | 12% |
| $50,401 to $105,700 | 22% |
| $105,701 to $201,775 | 24% |
| $201,776 to $256,225 | 32% |
| $256,226 to $640,600 | 35% |
| $640,600 or more | 37% |
However, nonresidents cannot claim the standard deduction, which often leads to higher tax liability unless a tax treaty applies.
Fixed, Determinable, Annual, or Periodical (FDAP) income – taxed at 30%
The second category is FDAP income – passive U.S.-sourced income that is not connected to a U.S. business. This is typically subject to a flat 30% withholding tax, though a tax treaty between the U.S. and your home country may reduce that rate significantly.
It’s important to understand that the 30% is usually a withholding rate – meaning it’s deducted at source by the payer before you ever see the money. It is not necessarily your final tax bill. If too much is withheld, you may be entitled to a refund after filing your tax return.
FDAP income includes:
- Dividends from U.S. companies – generally withheld at 30%, reducible by treaty
- Interest income – often exempt for nonresidents under the portfolio interest exemption, but some types are withheld at 30%
- Royalties – withheld at 30%, reducible by treaty
- Gambling winnings – withheld at 30%, unless a treaty exemption applies (see section below)
- Certain scholarship and fellowship income not used for tuition and required fees
Need to file a tax return?
Sprintax Returns will prepare your 1040-NR form and ensure all treaty benefits are applied correctly.
How to open a bank account in the U.S. for foreigners
Yes, nonresidents can open a U.S. bank account. While not a tax issue directly, having a U.S. bank account can make it easier to receive refunds and manage U.S. income.
You’ll typically need:
- A valid passport
- A visa and supporting immigration documents
- Proof of address
- ITIN or SSN (some banks may allow you to apply without one initially)
Forms W-8BEN and 8233 – claiming treaty benefits and exemptions
If you’re a nonresident alien receiving U.S.-sourced income, two IRS forms are particularly important for reducing or eliminating withholding tax before it is even applied.
Form W-8BEN (Certificate of Foreign Status of Beneficial Owner)
Form W-8BEN is completed by nonresident individuals to certify their foreign status and claim benefits under a tax treaty.
You submit this form to the withholding agent – typically your bank, broker, or employer – not to the IRS directly.
Common situations where you’ll need a W-8BEN include:
- Investing in U.S. stocks and receiving dividends – your broker needs this form to apply the correct (reduced) treaty withholding rate
- Receiving U.S.-sourced interest, royalties, or other FDAP income
- Opening a U.S. brokerage account as a foreign national
Without a W-8BEN on file, the payer is required to withhold at the default 30% rate. With it, and assuming a tax treaty applies, that rate may be reduced – to 15%, 10%, 5%, or even 0%, depending on the treaty and the type of income.
Form 8233 (Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual)
Form 8233 is used by nonresident aliens to claim a tax treaty exemption on compensation for services – meaning wages, salaries, or fees for personal services performed in the U.S. This is commonly used by international students, researchers, professors, and other visa holders whose home country has a tax treaty with the U.S. that covers employment or scholarship income.
Unlike W-8BEN, Form 8233 is submitted to your employer or payer, and the employer then sends a copy to the IRS. It must be submitted annually and applies only to the current tax year.
If your treaty exemption is approved, your employer can stop withholding U.S. income tax from the relevant payments. If you don’t submit Form 8233, tax will be withheld from your pay as normal – though you may still be able to claim the treaty benefit when you file your annual tax return.
Capital gains tax for foreigners
If you sell stocks or U.S. real estate as a nonresident, you may be liable to pay capital gains tax. Here’s how it works:
- Stocks: Nonresidents are generally not taxed on capital gains from U.S. stocks, unless you are present in the U.S. for 183+ days in a calendar year.
- Real estate: Gains from the sale of U.S. property are taxable. The FIRPTA (Foreign Investment in Real Property Tax Act) rule requires a portion of the proceeds to be withheld at the time of sale.
Sprintax can help you report real estate gains and claim any eligible refund.
Tax on gambling winnings
If you win big in Las Vegas or at any other U.S. gambling venue, firstly – congratulations!
However, you should be aware that gambling winnings are subject to 30% withholding for nonresidents, unless they are exempt from a tax treaty. As noted above, this 30% is a withholding rate applied at source – not necessarily the final amount you owe.
You’ll need to report these winnings on your 1040-NR return to potentially claim a refund.
Can foreigners invest in U.S. stocks?
Yes, and many do! But there are tax implications to consider.
- Dividends paid by U.S. companies to nonresidents are generally subject to 30% withholding tax—though this may be reduced or eliminated by a tax treaty.
- You’ll need to complete Form W-8BEN and submit it to your broker to claim treaty benefits. See the W-8BEN section above for more details on how this works.
Sprintax Dividends can help you complete all your relevant forms in order to claim a dividend withholding tax (DWT) refund (in cases of over-withholding).
Can foreigners get a tax refund in the U.S.?
Income tax refund and Social Security/Medicare refunds are two of the most common refunds available to nonresidents in the U.S.
Income tax refund
If too much was withheld from your paycheck or investment income, you may be entitled to a refund after filing your 1040-NR.
Social Security and Medicare tax refund
Some nonresidents, especially students, J-1 visa holders, and interns, are exempt from paying Social Security and Medicare taxes. If these taxes were incorrectly withheld from your paycheck, you may be able to claim a refund.
Sprintax Returns can help you claim a Social Security tax refund.
Let Sprintax help you stay tax compliant
Tax in the U.S. can be complicated – but you don’t have to go it alone!
Sprintax is the only self-preparation software for U.S. nonresident federal and state tax returns.
We make it easy to:
- Determine your residency status
- File Form 1040-NR
- Claim refunds on income tax, Social Security, and more
- Complete your W-8BEN for dividend and investment income
️ Start your nonresident tax return with Sprintax today
