Alien - Sources of Income

Federal Tax Purposes 

The Internal Revenue Service classifies income into two sources: U.S. source or foreign source. 

  • The source of income depends on the type of payment made, location of the payer and location of service provided.
  • Resident aliens are taxed on their worldwide income. Nonresident aliens are taxed on their U.S. source only. 
  • Foreign source income paid to a nonresident alien is not subject to income tax withholding or tax reporting.  

The following table illustrates the Federal Income Sourcing Rules.

Type of PaymentSource
Determined by
 
Location of Service 
In the United StatesOutside of the United States
Compensation: Employment or Independent ServicesWhere the services
are performed
U.S. Source IncomeForeign Source Income
Fellowship/Scholarship (Non-service)U.S. Payer U.S. Source Income Foreign Source Income
Foreign Payer Foreign Source IncomeForeign Source Income
RoyaltyWhere property is
used
U.S. Source IncomeU.S. Source Income
Death PaymentWhere the services
were performed to
accrue benefit
U.S. Source IncomeForeign Source Income
PensionWhere the services
 were performed to
 accrue benefit
U.S. Source IncomeForeign Source Income

 State Tax Purposes

For California tax purposes, income is sourced by residency of the individual receiving payment and location of services. 

  • California residents are taxed on all income earned regardless of where it is earned. 
  • Nonresidents (of California) are only taxed on the income earned while working and living in California. 

Provided is a table containing the Franchise Tax Board (FTB) rules as they pertain to California nonresidents.

Type of PaymentSource
Determined by
 
Location of Service 
Inside CaliforniaOutside California
EmploymentWhere the services
are performed
California SourceNon-California Source
Independent Personal ServicesWhere the services
are performed 
California Source Non-California Source 
Fellowship/ScholarshipU.S. Payer California Source*Non-California Source
Foreign Payer Foreign Source IncomeForeign Source Income
Death PaymentWhere the services
were performed to
accrue benefit
California SourceNon-California Source
PensionWhere the services
 were performed to
 accrue benefit
California SourceNon-California Source

*Per an agreement with the FTB, no California withholding or reporting on California source fellowship/scholarship payments is required by UC Universities. However, recipient of such awards may have a requirement to file estimated quarterly payments with the FTB.

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