U.S. sourced income refers to specific types of income that are considered to originate from within the United States for tax purposes. According to the Internal Revenue Code and Treasury Regulations, the following items are treated as income from sources within the United States:
- Interest:
- Interest from the United States or the District of Columbia.
- Interest on bonds, notes, or other interest-bearing obligations of noncorporate residents or domestic corporations, with certain exceptions such as interest on deposits with a foreign branch of a domestic corporation engaged in commercial banking.
- Dividends:
- Dividends received from a domestic corporation.
- Dividends from a foreign corporation if 25% or more of its gross income for the preceding three years was effectively connected with a U.S. trade or business.
- Personal Services:
- Compensation for labor or personal services performed in the United States, with exceptions for nonresident aliens temporarily present in the U.S. for not more than 90 days during the taxable year, whose compensation does not exceed $3,000, and who are employed by a foreign employer.
- Rentals and Royalties:
- Rentals or royalties from property located in the United States or from any interest in such property, including intellectual property used in the United States.
- Disposition of U.S. Real Property Interests:
- Gains, profits, and income from the disposition of a U.S. real property interest.
- Sale or Exchange of Inventory Property:
- Gains, profits, and income derived from the purchase of inventory property outside the United States and its sale or exchange within the United States.
- Underwriting Income:
- Amounts received as underwriting income derived from issuing or reinsuring insurance or annuity contracts in connection with U.S. property, activities, or residents.
- Social Security Benefits:
- Any social security benefit as defined in section 86(d).
- Guarantees:
- Amounts received for the provision of a guarantee of any indebtedness of a U.S. resident or domestic corporation, or a foreign person if connected with a U.S. trade or business.
The taxable income from these sources is determined by deducting expenses, losses, and other deductions properly apportioned or allocated to the U.S. sourced income, as well as a ratable part of any expenses, losses, or other deductions that cannot be definitely allocated to any specific item or class of gross income.
For income that is derived partly from sources within and partly from sources without the United States, the allocation or apportionment is done under regulations prescribed by the Secretary, often using processes or formulas of general apportionment.
In summary, U.S. sourced income encompasses various types of income that are considered to originate from within the United States, and specific rules and exceptions apply to determine the exact nature and tax treatment of such income.
Sources:
§ 861. Income from sources within the United States
§ 862. Income from sources without the United States
§ 863. Special rules for determining source
Publication 519 (2023)
§ 1.861-1. Income from sources within the United States.
PLR 9628024
§ 1.862-1. Income specifically from sources without the United States.
