Publication 519 |
2000 Tax Year |
Nonresident Aliens
Nonresident aliens can exclude the following items from their gross
income.
Interest
U.S. source interest income that is not connected with a U.S. trade
or business is excluded from income if it is from:
- Deposits (including certificates of deposit) with persons in
the banking business,
- Deposits or withdrawable accounts with mutual savings banks,
cooperative banks, credit unions, domestic building and loan
associations, and other savings institutions chartered and supervised
as savings and loan or similar associations under federal or state law
(if the interest paid or credited can be deducted by the association),
and
- Amounts held by an insurance company under an agreement to
pay interest on them.
Government obligations.
Interest on obligations of a state or political subdivision, the
District of Columbia, or a U.S. possession, generally is not included
in income. However, interest on certain private activity bonds,
arbitrage bonds, and certain bonds not in registered form is included
in income.
Portfolio interest.
U.S. source interest income that is not connected with a U.S. trade
or business and that is portfolio interest on obligations issued after
July 18, 1984, is excluded from income. Portfolio interest is interest
(including original issue discount) that is paid on obligations:
- Not in registered form (bearer obligations) that are sold
only to foreign investors, and the interest on which is payable only
outside the United States and its possessions, and that has on its
face a statement that any U.S. person holding the obligation will be
subject to limitations under the U.S. income tax laws,
- In registered form that are targeted to foreign markets and
the interest on which is paid through financial institutions outside
the United States, or
- In registered form that are not targeted to
foreign markets, if you furnished the payer of the interest (or the
withholding agent) a statement that you are not a U.S. person. You
should have made this statement on a Form W-8 or on a substitute
form similar to Form W-8. In either case, the statement should
have been signed under penalties of perjury, should have been
certified that you are not a U.S. citizen or resident, and should have
included your name and address.
Form W-8 is not valid after 2000. After 2000, you must make
the statement in (3) above on Form W-8BEN or on a substitute
form provided by the withholding agent.
Portfolio interest does not include the following types of
interest.
- Interest you receive on an obligation issued by a
corporation of which you own, directly or indirectly, 10% or more of
the total voting power of all classes of voting stock.
- Interest you receive on an obligation issued by a
partnership of which you own, directly or indirectly, 10% or more of
the capital or profits interests.
- Contingent interest.
Contingent interest.
Portfolio interest does not include contingent interest.
Contingent interest is
either of the following:
- Interest that is determined by reference to:
- Any receipts, sales, or other cash flow of the debtor or
related person,
- Income or profits of the debtor or related person,
- Any change in value of any property of the debtor or a
related person, or
- Any dividend, partnership distributions, or similar payments
made by the debtor or a related person.
- Any other type of contingent interest that is identified by
the Secretary of the Treasury in regulations.
For the definition of "related person" in connection with
any contingent interest, and for the exceptions that apply to interest
described in item (1), see subparagraphs (B) and (C) of Internal
Revenue Code section 871(h)(4).
Exception for existing debt.
Portfolio interest includes any contingent interest paid or accrued
on any debt with a fixed term that was issued:
- On or before April 7, 1993, or
- After April 7, 1993, pursuant to a written binding contract
in effect on that date and at all times thereafter before that debt
was issued.
Services Performed
for Foreign Employer
If you were paid by a foreign employer, your U.S. source income may
be exempt from U.S. tax, but only if you meet one of the situations
discussed next.
Employees of foreign persons, organizations, or offices.
If three conditions exist, income for personal services performed
in the United States as a nonresident alien is not considered to be
from U.S. sources and is tax exempt. If you do not meet all
three conditions, your income from personal services performed
in the United States is U.S. source income and is taxed according to
the rules in chapter 4.
The three conditions are:
- You perform personal services as an employee of or under a
contract with a nonresident alien individual, foreign partnership, or
foreign corporation, not engaged in a trade or business in the United
States; or you work for an office or place of business maintained in a
foreign country or possession of the United States by a U.S.
corporation, a U.S. partnership, or a U.S. citizen or resident,
- You perform these services while you are a nonresident alien
temporarily present in the United States for a period or periods of
not more than a total of 90 days during the tax year, and
- Your pay for these services is not more than $3,000.
If your pay for these services is more than $3,000, the entire
amount is income from a trade or business within the United States. To
find if your pay is more than $3,000, do not include any amounts you
get from your employer for advances or reimbursements of business
travel expenses, if you were required to and did account to your
employer for those expenses. If the advances or reimbursements are
more than your expenses, include the excess in your pay for these
services.
A day means a calendar day during any part of which you are
physically present in the United States.
Example 1.
During 2000, Henry Smythe, a nonresident alien from a nontreaty
country, worked for an overseas office of a domestic partnership.
Henry, who uses the calendar year as his tax year, was temporarily
present in the United States for 60 days during 2000 performing
personal services for the overseas office of the partnership. That
office paid him a total gross salary of $2,800 for those services.
During 2000, he was not engaged in a trade or business in the United
States. The salary is not considered U.S. source income and is exempt
from U.S. tax.
Example 2.
The facts are the same as in Example 1, except that
Henry's total gross salary for the services performed in the United
States during 2000 was $4,500. He received $2,875 in 2000, and $1,625
in 2001. During 2000, he was engaged in a trade or business in the
United States because the compensation for his personal services in
the United States was more than $3,000. Henry's salary is U.S. source
income and is taxed under the rules in chapter 4.
Crew members.
Compensation for services performed by a nonresident alien in
connection with the individual's temporary presence in the United
States as a regular crew member of a foreign vessel engaged in
transportation between the United States and a foreign country or U.S.
possession is not U.S. source income and is exempt from U.S. tax.
Students and exchange visitors.
Nonresident alien students and exchange visitors present in the
United States under "F," "J," or "Q" visas can exclude
from gross income pay received from a foreign employer.
This group includes bona fide students, scholars, trainees,
teachers, professors, research assistants, specialists, or leaders in
a field of specialized knowledge or skill, or persons of similar
description. It also includes the alien's spouse and minor children if
they come with the alien or come later to join the alien.
A nonresident alien temporarily present in the United States under
a "J" visa includes an alien individual entering the United
States as an exchange visitor under the Mutual Educational
and Cultural Exchange Act of 1961.
Foreign employer.
A foreign employer is:
- A nonresident alien individual, foreign partnership, or
foreign corporation, or
- An office or place of business maintained in a foreign
country or in a U.S. possession by a domestic corporation, a domestic
partnership, or an individual who is a citizen or resident of the
United States.
The term "foreign employer" does not include a foreign
government. Pay from a foreign government that is exempt from U.S.
income tax is discussed in chapter 10.
Income from certain annuities.
Do not include in income any annuity received under a
qualified annuity plan or from a qualified trust
exempt from U.S. income tax if you meet both of the following
conditions.
- You receive the annuity only because:
- You performed personal services outside the United States
while you were a nonresident alien, or
- You performed personal services inside the United States
while you were a nonresident alien and you met the three conditions
described earlier under Employees of foreign persons,
organizations, or offices.
- At the time the first amount is paid as an annuity under the
plan (or by the trust), 90% or more of the employees for whom
contributions or benefits are provided under the annuity plan (or
under the plan of which the trust is a part) are citizens or residents
of the United States.
If the annuity qualifies under condition (1) but not condition (2)
above, you do not have to include the amount in income if:
- You are a resident of a country that gives a substantially
equal exclusion to U.S. citizens and residents, or
- You are a resident of a beneficiary developing country under
the Trade Act of 1974.
If you are not sure whether the annuity is from a qualified annuity
plan or qualified trust, ask the person who made the payment.
Income affected by treaties.
Income of any kind that is exempt from U.S. tax under a treaty to
which the United States is a party is excluded from your gross income.
Income on which the tax is only limited by treaty, however, is
included in gross income. See chapter 9.
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