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Tax Guide

During the period of time that an individual is considered a US-resident for tax purposes:

  • All worldwide income is taxed by the IRS at the normal rates. (e.g. basically any source of income at all)

During the period of time that an individual is considered a US-non-resident for tax purposes:

  • All US-sourced income that is effectively connected with a trade or business in the US is taxed by the IRS at the normal rates. (e.g. consulting for an American company while in America)

  • All US-sourced income that is NOT effectively connected with a trade or business in the US is taxed by the IRS at 30% or treaty rates. (e.g. winning money at an American casino while in America)

  • All non-US-sourced income is not taxed at all by the IRS. (e.g. consulting for a Canadian company while in Canada)

Question

While browsing the Internet, I stumbled upon the aforementioned guide someone posted. Is this a correct way to think about the American tax system? Or are there any major glaring errors?

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  • 3
    Are we implicitly assuming that we're dealing with a non-citizen here?
    – Justin Cave
    Commented Sep 9, 2023 at 3:10
  • 3
    Consulting for a Canadian company can be US-sourced income, if you do the work while in the US.
    – user102008
    Commented Sep 9, 2023 at 3:11
  • Taxes may be modified by treaties. Income tax paid to another country may be deductable from US tax returns. That avoids double-taxing, at least.
    – keshlam
    Commented Sep 9, 2023 at 3:21
  • @user102008 Alright, I get that taxes are complicated, with many "gotcha" edge cases. However, when looking at it from a 30,000 ft view, does the overall gist of the post track? Or am I completely off track? Anything major that I should be aware of?
    – AlanSTACK
    Commented Sep 9, 2023 at 4:12
  • @JustinCave Yes, non-citizens only. So basically just people on various types of visas.
    – AlanSTACK
    Commented Sep 9, 2023 at 4:13

1 Answer 1

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I corrected a typo in your question.

Yes, at a very high level this is generally correct. The devil is, of course, in the details. What determines if your income is ECI or not? What is "trade or business" at all? Earned vs. non-earned, real estate, dividends from US companies, estates and inheritances, gifts, treaties, etc - there's a lot more to all of this.

But if you're asking about 30K feet view then yes, that's what you got.

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  • Thanks for the insight, I just needed a "starting off point"! Hope you have a great weekend!
    – AlanSTACK
    Commented Sep 9, 2023 at 7:31
  • Sorry, just another follow-up, I made an edit to add "while in America/Canada" to the original question for better clarity for future readers. Does it still hold up against your sniff test?
    – AlanSTACK
    Commented Sep 9, 2023 at 7:35
  • Yes, that was clarified in the comments. Where the company is matters not, the physical presence matters
    – littleadv
    Commented Sep 9, 2023 at 17:49

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