Earning Income in the U.S. as a Nonresident? Here’s What’s Taxable

Earning Income in the U.S. as a Nonresident? Here’s What’s Taxable


📅 January 28, 2025 – ⏱ 7 minute read

💡 Living and earning in the U.S. as a nonresident? Here’s what you need to know about taxable income.

Understanding U.S. taxes can be confusing — especially when you’re figuring out whether your income counts as taxable and which forms to file.

If you’re a nonresident alien, your U.S. tax obligations depend on one key rule:
👉 You’re taxed only on income from U.S. sources, not on money earned outside the country.

In this guide, we’ll break down:
✅ Which types of income are taxable
✅ What’s exempt
✅ How international students, au pairs, and scholars are taxed
✅ And practical steps to stay compliant with the IRS

📚 Table of Contents

1️⃣ Resident vs. nonresident taxation
2️⃣ How international students are taxed
3️⃣ Types of taxable income (interest, dividends, capital gains, scholarships, au pair wages, etc.)
4️⃣ What income is not taxable
5️⃣ How to handle your U.S. tax return
6️⃣ Key forms and deadlines

1️⃣ Resident vs. Nonresident Taxation

🏠 Resident Aliens

If you’re considered a resident alien for tax purposes, you’ll be taxed on your worldwide income, just like a U.S. citizen. That includes any money earned inside or outside the U.S.

However, only certain scholars and teachers can claim tax treaty benefits to reduce their U.S. tax liability.

🌍 Nonresident Aliens

If you’re classified as a nonresident alien, you’ll only pay tax on U.S.-source income.

Here’s the breakdown:

  • Effectively connected income (ECI) — wages, salaries, or compensation linked to U.S. work — is taxed at graduated rates (like residents).

  • Non-effectively connected income (FDAP) — such as dividends or royalties — is generally taxed at a flat 30% rate, unless reduced by a tax treaty.

2️⃣ 🎓 How Are International Students Taxed?

Most international students on F-1, J-1, or M-1 visas are treated as nonresidents for tax purposes during their first years in the U.S.

That means:

  • You’re taxed only on U.S. income (like on-campus jobs, internships, or stipends).

  • You must file a tax return each year, even if you didn’t earn income.

📄 If you earned income → file Form 1040-NR
📄 If you didn’t earn income → file Form 8843 to maintain visa compliance

💡 After five calendar years in the U.S., some students (especially F-1 visa holders) may become resident aliens for tax purposes.

3️⃣ 💵 Types of Taxable Income for Nonresidents

💰 Interest Income

  • Bank deposit interest (from U.S. banks, savings institutions, or credit unions) is not taxable for nonresidents — but still reported on Form 1042-S.

  • Other U.S.-source interest, however, is taxable at 30% unless reduced by a tax treaty.

  • You can claim a treaty benefit by submitting Form W-8BEN to your payer.

💸 Dividend Income

  • Dividends are paid by U.S. corporations to shareholders.

  • These are generally taxable at 30%, but may be reduced under a tax treaty if the correct documentation (Form W-8BEN) is filed.

  • Even exempt dividends must still be reported to the IRS on Form 1042-S.

📈 Capital Gains

  • Profits from selling stocks, assets, or investments are not usually taxable if you’ve been in the U.S. fewer than 183 days in the tax year.

  • If you stay 183 days or more, your gains may be taxed at 30%.

  • Tax treaties may reduce or exempt these gains, so check if your country has one in place.

🩸 Plasma Donations

Yes — payments you receive for donating plasma are taxable income.

The donation center will issue a Form 1099-MISC summarizing your total earnings for the year, and you’ll need to include that income on your Form 1040-NR.

🎓 Teaching & Research Compensation

If you’re a teacher, professor, or researcher invited to work at a U.S. institution under a J-1 visa, your income is taxable.

However, many tax treaties fully or partially exempt teaching and research pay for a limited time (often 2–3 years). Always verify your country’s treaty details before filing.

🎓 Scholarships & Grants

If you’re on an F-1, M-1, or J-1 visa, scholarships or grants that pay for tuition are generally tax-free.

But any amount used for:

  • Living expenses

  • Meals

  • Travel

  • Or personal services (like a teaching assistantship)
    …is taxable income and must be reported.

Some treaties exempt a portion of this income — typically between $2,000–$10,000, depending on your home country.

👶 Au Pair Wages

If you work as an au pair, your wages are considered personal service income and are fully taxable at graduated rates.

Here’s what to do:
1️⃣ File Form 1040-ES (NR) to make estimated payments, or file a 1040-NR at year-end and pay your total tax by April 15.
2️⃣ You’ll need a Social Security Number (SSN) or ITIN to file.
3️⃣ You can also ask your host family to withhold tax from your pay using Form W-4.

4️⃣ 🚫 What Income Is Not Taxable for Nonresidents?

✅ Social Security & Medicare (FICA) – You’re exempt if you’re on an F-1, J-1, M-1, or Q visa, working within the limits of your authorized program (like OPT or CPT).
✅ Foreign-source income – Money earned outside the U.S. isn’t taxed here.
✅ Tax-exempt treaty income – Specific treaty articles may exclude certain scholarships, teaching income, or interest.

5️⃣ 📄 How to Prepare and File Your Tax Return

Every nonresident alien must file a tax return each year, even if they didn’t earn income.

Here’s how:

  • Use Form 1040-NR to report income from U.S. sources

  • Attach Form 8843 if you were in the U.S. under an F, J, M, or Q visa

  • File by April 15, 2025 (or June 15 if you had no income)

  • Mail your return to the IRS Center in Austin, Texas, or e-file if eligible

💡 If you worked in multiple states, you may also need to file state tax returns, since each state has its own tax rules.

6️⃣ ✍️ Key Takeaways

✅ Nonresidents pay tax only on U.S.-source income
✅ Interest, dividends, capital gains, scholarships, and wages may be taxable
✅ Treaty benefits can reduce your tax bill
✅ F-1 and J-1 students are exempt from FICA taxes
✅ Always file on time to stay compliant and protect your visa status

🎯 Final Word

Understanding what’s taxable as a nonresident doesn’t have to be overwhelming.
Once you know the categories of income — and which forms to file — staying compliant with the IRS becomes straightforward.

With proper documentation and awareness of your treaty rights, you can avoid overpaying taxes, stay in good standing with immigration rules, and even maximize your refund next year. 🌍💼✅