Determine Foreign Source Funding

Background

U.S. citizens and resident aliens are subject to tax on his or her worldwide income; a nonresident alien (NRA) is subject to tax only on his or her income from U.S. sources. Therefore, IRS provides sourcing rules to income payments. There are different sourcing rules tied to each income category.

If the income payment to a NRA is foreign source, then the payment is not taxable or required to be reported to the government. The Research Foundation of SUNY is not required to withhold federal income tax or required to report the payments to the IRS on form 1042-S.

Income Paid to Employees and Independent Contractors

If a NRA receives income for performance of personal services, either as an employee or an independent contractor, the income is sourced to the country where the service is performed.

The table below provides guidance on determining the income source for payments to employees and independent contractors:

Determining Income Source for Employees and Independent Contractors (Service)

Origination of Funds

 

Location of Services

U.S.

Outside U.S.

U.S.

U.S. Source Income

Foreign Source Income

Outside U.S.

U.S. Source Income

Foreign Source Income

Income Paid to Fellows

The sourcing rule for fellow payments is based on a combination of the residence of the payer and the location of the education activity (e.g., study, independent research). A fellow payment to or on behalf of
an NRA is only considered U.S. Source if both the payer and the location of the educational activity is in the U.S.

The table below provides guidance on determining the income source for payments to fellows:

Determining Income Source for Fellows (Non-Service)

Origination of Funds

 

Location of Study or Independent Research

U.S.

Outside U.S.

U.S.

U.S. Source Income

Foreign Source Income

Outside U.S.

Foreign Source Income

Foreign Source Income

Other Miscellaneous Income Payments

Rental recipient income is sourced in the country in which the rental property is located.

Royalty recipient income is sourced based on where the royalty is exercised.

Participant stipend income is sourced based on where the funds originated.

Change History

 

 

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