Non-U.S. Source Income (Foreign Source Income) Payments to Nonresident Aliens (NRA) for Income where the location of the activity for which the payment is being issued is outside the U.S.
What is Non-U.S. Source Income?
The Internal Revenue Service (IRS) considers all services performed entirely outside of the U.S. by a Nonresident Alien (NRA) to be Non-U.S. Source Income. Nonresident aliens, for tax purposes, unlike U.S. citizens and residents, are only subject to tax on income that is considered U.S.-source income.
Foreign-source Income received by nonresident aliens is not subject to U.S. taxation. Income is considered foreign-source if the location of the activity for which the payment is being issued is outside the U.S. A clear indication of the location of the activity is necessary on all supporting documentation for the payment to be correctly classified. This applies to both service and non-service income.
If the source of income cannot be determined at the time of payment, such as when the location of the activity is not indicated, the payment must be treated as U.S. sourced under IRS Regulations.
Royalties, such as those paid for the use of intellectual properties (industrial properties and copyrights), are taxable and considered U.S. sourced if the subject property is used in the U.S.
Non-U.S. Source Income is not applicable to payments to U.S. Persons (Citizens, Resident Aliens) performing work outside the U.S. as U.S. Persons are taxed on World-Wide Income per IRS regulations.
Immigration and Tax Requirements for Non-U.S. Source Income
The UW does not have an obligation to report Non-U.S. Source Income; therefore, the UW is not required to obtain any immigration documentation or tax/tax documents, except for a completed and signed Form W-8BEN (Individual) or Form W-8BEN-E(Entities) to establish that the individual or entity is a Nonresident Alien (NRA).
What Account Code to use for Non-U.S. Source Income
Non-U.S. Source Income should be coded to Account Code 2623 (Non-Tax Reportable Services and Expenditures). See Codes for more information.
Campus Responsibility for Non-U.S. Source Income
When making all Non-U.S. Source income payments it is the responsibility of each paying Center/Department/Unit to assure that the payment recipient is a Nonresident Alien (NRA). In order to accomplish this and maintain adequate support documentation the paying Center/Department/Unit is required to obtain a completed and signed Form W-8BEN (Individual) or Form W-8BEN-E (Entities).
Note: For Non Non-U.S. Source Income the Form W-8BEN (Individual) or Form W-8BEN-E (Entities) does not need to have a U.S. Taxpayer Identification Number (TIN) to be considered complete since Non-U.S. Source Income is not tax reportable. This is unlike tax reportable income performed in the U.S, where the Form W-8BEN (Individual) or Form W-8BEN-E (Entities) must have a U.S. Taxpayer Identification Number (TIN) to be considered complete or the UW is required to withhold applicable federal taxes.
Prior to sending any payment requests (PIR, DP, PO) to Accounting Services for Non-U.S. Source Income, please make sure that your request includes a completed and signed Form W-8BEN (Individual) or Form W-8BEN-E (Entities).
21 North Park Street
5th Floor, Room 5352
Madison, WI 53715
Jose A. Carus, Jr.
Tax Compliance Manager