Nonresident aliens – Exclusions from income

 

Foreign source income

Generally, nonresident aliens(NRAs) are taxed only on income that is effectively connected with  a U.S. tread or business (ECI) or U.S.-sourced fixed, determinable, annual or periodic (FDAP) income.  Foreign source income received by a nonresident alien is not subject to United States (U.S.) taxation unless such income is ECI. Refer to sourcing of income for more information.

U.S. source income excluded from U.S. taxation:

Certain types of U.S. source income earned by NRAs are excluded from U.S. taxation under the Internal Revenue Code (IRC) or applicable income tax treaties.

Interest income that is not connected with a U.S. trade or business is excluded from income under IRC section 871(i) and (h)if it is from:

  • Deposits (including certificates of deposit) with persons in the banking business,

  • Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or credited can be deducted by the association),
  • Amounts held by an insurance company under an agreement to pay interest on them,
  • Interest on obligations of a state or political subdivision, the District of Columbia, or a U.S. possession, generally is not included in income. However, interest on certain private activity bonds, arbitrage bonds, and certain bonds not in registered form is included in income, or
  • Portfolio interest on obligations issued after July 18, 1984, in registered form (e.g., registered bonds) is excluded from income. For a discussion of portfolio interest, refer  Refer to "Portfolio interest exempt from chapter 3 withholding" in  Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Some gambling winnings excluded from income

  • Under IRC section 871(j), gambling winnings from blackjack, baccarat, craps, roulette, or big-6 wheel are nontaxable to NRAs who are not professional gambles. (For NRA professional gambles, these types are earnings are still subject to U.S. tax under IRC section 871(b).) 

Note: Since these items are excluded from income, any related expenses would be nondeductible, such as any losses related to these types of gambling.

Personal service income - De minimis Exception

Under IRC Section 864(b)(1) there is a limited exception for personal services provided by an NRA for a foreign employer if all of the following three conditions are met:  

  1. The employer is a foreign employer. A foreign employer is either (i) an NRA, foreign partnership, or foreign corporation not engaged in a trade or business in the United States; or (ii) a foreign office or place of business of a U.S. corporation, a U.S. partnership, or a U.S. citizen or resident.
  2. The services are performed while the NRA is temporarily present in the U.S. for a period or periods of not more than a total of 90 days during the tax year, and
  3. Compensation for these services is not more than $3,000.

Note: If compensation is more than $3,000, the entire amount is income from a trade or business within the U.S. and taxable.

Students and exchange visitors

  • NRA students and exchange visitors present in the United States on "F," "J," "M" or  "Q" visas can exclude from gross income, pay received from a foreign employer under IRC section 872(b)(3).

Note: The term "foreign employer" does not include a foreign government.

This group includes bona fide students, scholars, trainees, teachers, professors, researchers, specialists, or leaders in a field of specialized knowledge or skill, or persons of similar description. It also includes the alien's spouse and minor children if they come with the alien or come later to join him or her under same visa categories (i.e., F-2, J-2, or M-2). Q nonimmigrant classification does not have a provision for any spouse or children to accompany or follow to join a Q-1 nonimmigrant. Q-1 spouse or children coming to U.S. must qualify independently for a nonimmigrant classification and cannot exclude income unless they also come under F, J, M or Q visa categories.

Qualified scholarship income under IRC section 117

Note: Non-qualified scholarship amounts, such as amounts for room and board, travel, stipends. Teaching and research services are taxable, unless a tax treaty provides an exemption.

Crew members of foreign vessels

  • Compensation for personal services paid to NRAs who are temporarily present in the U.S. as regular crew members of a foreign vessel engaged in transportation between the U.S. and a foreign country, or a possession of the U.S., shall not be subject to U.S. taxation.

Income affected by treaties

  • Income of any kind that is exempt from U.S. tax under a treaty to which the U.S. is a party may be excluded from NRA’s gross income. Income on which the tax is limited or reduced by treaty is included in gross income but taxed at a lower rate. Tax treaty provisions are not automatic and must be elected/claimed by the taxpayer.  Refer to Tax treaties for additional information.

Related

Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Page Last Reviewed or Updated: 25-Feb-2026