Are you a nonresident living in the U.S.? We know it can be confusing to understand the tax system in your home country, let alone in a different one, so we are here to help explain what income is taxable for nonresidents in the U.S.
As a foreign national you can be subject to one of two different systems of taxation in the U.S., depending on whether you are classified as a nonresident or resident alien in the U.S.
In this guide, we are going to take a closer look at the various types of income that are taxable in the U.S. and outline our tips on managing your tax requirements.
Tax impact of being a resident vs. nonresident for tax purposes
Resident aliens
If you are classified as a resident alien you will be taxed on all of your worldwide income. Resident aliens must report their entire worldwide income just like U.S. citizens on their Form 1040.
As well as this, only certain individuals will be able to claim the benefits of tax treaties if they are classified as nonresidents.
Nonresident aliens
If you are considered a nonresident alien, you will only be taxed on income you earned from U.S. sources.
The U.S.-source income which is considered “effectively connected” with a U.S. business or trade, such as salary or any other type of compensation is taxed at graduated rates.
U.S. investment income can be reduced by a tax treaty and is generally taxed at a flat 30% tax rate. There are certain types of investment income which may be exempt from U.S. tax.
Read more about your investment income tax requirements here.
How are international students taxed?
Most international students are classified as nonresidents for tax purposes and will be taxed in the same manner as a nonresident alien, which means that international students will be taxed only on income from U.S. sources.
If you are an international student, you must file a tax return if you were in the U.S. the previous tax year. If you did not earn any income, to fulfil your visa obligations you will still need to file the Form 8843.
- Nonresident aliens use Form 1040 NR to report income that is sourced in the U.S. or is connected with a U.S. business or trade.
- Nonresident aliens who receive interest income from deposits with a U.S. bank, loan & savings institution, an insurance company or credit union are exempt from taxation on such interest income as long as it is not effectively connected with a U.S. business or trade.
Some international students can become resident aliens, for example, the F1 visa holders after the fifth year in a lifetime.
Sprintax can help you figure out your residency status and prepare your tax return.
If you have more questions about determining your residency status, please check out our U.S. tax residency guide or contact a live chat agent. Our chat support is available 24/7.
Employment income
Employment income earned by a nonresident alien from services performed in the U.S. is considered U.S.-sourced income and is fully taxable. This includes:
- Wages
- Salaries
- Tips
- Any other compensation received from a U.S. employer.
This type of income is treated as Effectively Connected Income (ECI) – directly connected to a U.S. trade or business – and is taxed at the same graduated federal rates that apply to U.S. residents, starting at 10% and rising to 37% depending on the amount earned.
Your employer will issue Form W-2 at the end of the tax year, reporting your total wages and the amount of tax withheld. You must include this income on your Form 1040-NR.
Note: Nonresident aliens are not entitled to claim the standard deduction, which can result in a higher taxable income compared to a resident filing on the same salary. However, certain itemized deductions and tax treaty benefits may still apply.
Income from self-employment
Self-employment income earned from services performed in the U.S. is also taxable for nonresident aliens. This includes:
- Freelance work
- Independent contracting
- Consulting
- Gig economy activities (such as rideshare driving or food delivery)
- Any other form of independent personal services carried out on U.S. soil.
Like employment income, this is treated as Effectively Connected Income and taxed at graduated rates on your Form 1040-NR.
Unlike U.S. residents, nonresident aliens are generally not subject to self-employment tax (which covers Social Security and Medicare contributions) on this type of income – unless a totalization agreement between the U.S. and your home country specifies otherwise.
If you are paid for self-employment work, you will typically receive a Form 1099-NEC from each client who paid you $2,000 or more (for payments made in 2026 onward; the threshold was $600 for prior years).
You are still required to report income even if you do not receive a 1099.
Interest income
Interest income is the revenue earned by a lender for use of his/her funds over a period of time.
Deposit interest on U.S. bank accounts is generally not taxable to nonresident aliens, but it may still need to be reported on Form 1042-S.
Other types of interest income from U.S. sources paid to a nonresident alien, are taxed at 30% (or a lesser tax treaty rate, if applicable).
The beneficial owner may claim the reduced treaty rate by filing Form W-8BEN with the withholding agent (the payer of the interest).
The beneficial owner is the natural person who owns or controls a company, a trust, or a foundation – the person who actually enjoys the benefits of ownership, even if the title to the property is held in another name.
Dividend income
Dividend income is paid out of the profits of a corporation to the stockholders.
Dividends paid by U.S. companies to nonresident aliens are generally subject to 30% withholding tax. However, dividend income may be covered by a tax treaty, in which case it could be taxed at a reduced rate. If the beneficial owner files Form W-8BEN with the withholding agent, they may claim the lesser tax treaty rate.
Even if the entire amount is exempt under a tax treaty, the withholding agent will report the payment on Forms 1042-S and 1042.
Capital gains
A capital gain is realized when a capital asset is sold or exchanged at a price higher than its basis (the original cost).
Capital gains income is generally not taxable to a nonresident alien who has been present in the U.S. fewer than 183 days in a calendar year. However, it is taxable at a 30% rate if the individual was present in the U.S. for 183 or more days during the year.
It’s worth noting that the 183-day rule for capital gains is different from the Substantial Presence Test used to determine overall tax residency – it applies specifically to this category of income.
Taxable capital gains may be subject to a reduced tax rate under tax treaty agreements. If you receive capital gains income, you must report it on Form 1040-NR.
Teaching/ Research compensation/ pay for teaching
If you are a nonresident alien teacher, researcher, or professor invited by a U.S. university or other accredited institution for research or teaching under Cultural Exchange Programs on a J-1 visa, you will receive compensation for these services.
Some tax treaties exempt the full compensation of a J-1 teacher or researcher from tax for a limited number of years. This is why this category is assigned a separate income code number by the IRS.
Compensation during scholarships and grants
You may be an international student or trainee (on F-1, M-1, or J-1 visas) who receives scholarship, grant, or personal service income related to your study and training.
The portion of a scholarship or fellowship used for tuition and required fees is generally not taxable. However, amounts used for room, board, travel, or other living expenses might be taxable and subject to 30% withholding unless a treaty applies.
Some tax treaties exempt a certain amount of this income from tax for a limited number of years – varying by country from $2,000 to $10,000 – if all other requirements of the relevant tax treaty article are met.
Plasma donations
Any income earned through plasma donations is subject to the same rules and regulations as any other form of income. The IRS considers plasma donation payments to be taxable income, meaning you’ll need to report them on your tax return.
Plasma donation centers are required by U.S. law to provide you with a Form 1099-MISC, which outlines the total compensation you received throughout the tax year. You’ll need to include this when you prepare your annual tax return.
Au Pair Wages
Wages paid to au pair visitors are treated as wages paid to household employees. Because au pair wages are paid for domestic services, they are not subject to reporting on Forms W-2 and 941, and the host family does not have an obligation to deduct income taxes.
However, au pair income is fully taxable and, similar to dependent personal services, is considered effectively connected to U.S. trade or business and taxable at a graduated tax rate. Like students and other foreign nationals, au pairs are required to file U.S. individual income tax returns.
If you are an au pair, you may have an income tax liability on your individual tax return. You should take the following steps:
1. File Form 1040ES-NR if you are a nonresident and pay income tax in instalments during the year, or file an end-of-year tax return on Form 1040-NR and pay the full tax liability at once by April 15 of the following year. You will need a U.S. TIN in both cases – either a Social Security Number or an ITIN.
2. If you and the host family agree, file Form W-4 with the host family and indicate on line 6 that you wish to have a specific amount of federal income tax withheld from your weekly wages. The host family must then report and pay this withheld tax on Schedule H of Form 1040. You must apply for a U.S. Social Security Number to do this.
Check out Sprintax Au Pair here!
What type of income is not taxable?
Not all U.S.-sourced income is taxable for nonresident aliens. The following types of income are generally exempt from U.S. federal income tax:
Bank deposit interest
Interest earned on deposits held at U.S. banks, savings institutions, credit unions, or insurance companies is generally not taxable to nonresidents, provided it is not effectively connected with a U.S. trade or business.
Foreign-source income
As a nonresident alien, you are only taxed on U.S.-sourced income. Income you earn from sources outside the United States – whether from employment, investments, or other activities in your home country or a third country – is not subject to U.S. tax.
Certain capital gains
Capital gains from the sale of U.S. assets are generally not taxable to nonresident aliens who were present in the U.S. for fewer than 183 days during the tax year. This means most nonresidents who invest in U.S. stocks and later sell them at a profit will not owe U.S. capital gains tax.
Certain treaty-exempt income
The U.S. has tax treaties with dozens of countries that can partially or fully exempt certain types of income from U.S. tax. Depending on your home country and the terms of the applicable treaty, this may include scholarships and fellowships, compensation for teaching or research, wages earned during a limited period of study or training, and reduced-rate taxation on dividends and interest. Treaty benefits must generally be claimed proactively – by filing Form W-8BEN or Form 8233 with the relevant payer, or by claiming the exemption on your Form 1040-NR.
Portfolio interest
Interest from certain U.S. bonds and debt instruments paid to nonresident aliens may qualify for the portfolio interest exemption and be completely free from U.S. withholding tax, provided specific conditions are met.
Social Security and Medicare (FICA) taxes
Nonresident aliens on F-1, J-1, M-1, or Q-1 visas who are temporarily in the U.S. are not subject to Social Security and Medicare taxes on income earned for the services for which they were admitted.
This exemption also applies to employment under Optional Practical Training (OPT) and Curricular Practical Training (CPT), provided the employment is authorized by U.S. Citizenship and Immigration Services. Note that this is an exemption from a specific type of tax rather than an income exemption – the underlying wages are still subject to income tax.
Sprintax Returns can prepare your nonresident tax return
Sprintax is the only online federal and state self-prep tax software for nonresidents.
When you create your Sprintax account, the system will help you prepare fully compliant federal and state tax returns and ensure you receive your maximum legal tax refund.
File your nonresident tax return
Can TurboTax help me?
No. TurboTax is the biggest online tax preparation service in the U.S., but it is designed for U.S. residents only. You cannot use TurboTax if you are a nonresident alien.
Sprintax is the nonresident tax preparation partner of choice for TurboTax.
Still have questions?
You can contact Sprintax Live Chat to help you with the tax preparation process.
With Sprintax you can:
- Save time and stress!
- Determine your residency status
- Prepare a fully compliant U.S. tax return
- E-file form 1040-NR (eligibility criteria here)
- Maximize your state tax refund
- Avail of our 24/7 Vita Qualified Live Chat facility
