Did you know that if you earn money or own property in the U.S., you might need to pay taxes—even if you don’t live here? For example, a foreign landlord renting out a U.S. property will need to understand and comply with these tax rules. Understanding U.S. tax rules for nonresidents can be tricky, but it’s essential to avoid surprises and stay compliant. This guide will break it down simply for you.
Who Are Nonresidents? In the U.S., a nonresident is someone who doesn’t live in the country but may have income or assets here. This could include:
Foreign citizens who own rental properties in the U.S.
People earning income from U.S.-based jobs or businesses.
Investors receiving dividends from U.S. companies.
What Do Nonresidents Pay Taxes On? Nonresidents generally pay taxes on two main types of income:
Effectively Connected Income (ECI): This is money you earn from active business activities in the U.S., like running a shop or providing services. Think of it as income that’s “connected” to work you do in the U.S.
Fixed or Determinable Annual or Periodic Income (FDAP): This includes passive income like rent, dividends, or royalties from U.S. sources. It’s income that’s predictable, such as monthly rent from a U.S. property.
Effectively Connected Income (ECI): Money earned from a trade or business in the U.S., like running a shop or offering services here.
Fixed or Determinable Annual or Periodic Income (FDAP): Passive income like rent, dividends, or royalties from U.S. sources.
Why It Matters Knowing what income is taxable ensures you meet your obligations and avoid penalties. Plus, understanding these rules can help you save money by claiming eligible deductions or benefits under tax treaties.
How Can You Get Help? Tax laws are complex, and small mistakes can lead to big problems. That’s where we come in! At Arc&Ledger, we specialize in guiding nonresidents through the U.S. tax system. Contact us today to learn more.
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