Payroll Services Source of Income

for Federal Taxation and Reporting Purposes – Non US Citizens

For federal tax purposes, the Internal Revenue Service classifies income into two sources. The income can either be U.S. source or foreign source. The source of income depends on the location of the payor, location of service provided, and the type of payment made.

Resident aliens are taxed on their worldwide income. Nonresident aliens are taxed on their U.S. source only. Foreign source income paid to a nonresident alien is not tax reported and is not subject to U.S. taxes. The table below illustrates this.

Source of Income for Federal Taxation and Reporting Purposes – Non US Citizens

Type of IncomeSource Determined by
Location of Services
In the U.S.Not in the U.S.
EmploymentWhere the services are performedU.S. SourceForeign Source
Independent Personal ServicesWhere the services are performedU.S. SourceForeign Source
RoyaltiesWhere property is usedU.S. SourceForeign Source
Fellowship/ScholarshipResidence of PayorUS Payor: U.S Source
Foreign Payor: Foreign
US Payor: Foreign*
Foreign Payor: Foreign
*the IRS has decided the payor must also be considered when sourcing a Fellowship/Scholarship payment.