What is FDAP Income, and How Does It Affect You?

If you’re a nonresident earning passive income in the U.S., you’ve probably heard of FDAP income. But what does it mean, and how does it impact your taxes? Let’s break it down.

FDAP stands for “Fixed, Determinable, Annual, or Periodic” income.

What is FDAP Income? FDAP stands for “Fixed, Determinable, Annual, or Periodic” income. This includes:

• Interest from U.S. bank accounts.

• Dividends from U.S. companies.

• Royalties for using intellectual property in the U.S.
  

How is FDAP Income Taxed? FDAP income is usually taxed at a flat rate of 30%, and withholding tax applies at the source. However, tax treaties can reduce this rate.

How to Stay Compliant To claim reduced rates under a tax treaty, you must provide a withholding certificate (like Form W-8BEN) to the payer.

Why Arc&Ledger? We simplify the process of filing taxes on FDAP income. Contact us today to learn how we can help.