Topic Summary

In this lesson, you learned that:

• The U.S. does not tax nonresident aliens' foreign-source income; income source needs to be determined before filing
• Nonresident students' or scholars' income is "effectively connected" if they are studying, teaching, or doing research; it is reported on Form 1040-NR
• Some tax treaties provide for a limited exemption from tax for wages earned while temporarily studying, teaching, or training in the U.S.
• Income received from interest, dividends, or gambling is not "effectively connected" and must be reported
• Income in the form of a scholarship or fellowship is treated in one of three ways:
  • Section 117 exclusion
  • Exempt by treaty
  • Taxable
• Nonresident students (except students and scholars from India) must itemize deductions but are limited in the type of expenses they can deduct
• Nonresident students and scholars are subject to 30 percent taxation of U.S. capital gains, unless a tax treaty allows a lower rate