Do You Owe US Tax If You Live Abroad But Earn Money From the US?

If you are a nonresident with US income, the US taxes only your US income. Here is how it works.

By Alan Kirsch, CPA — June 24, 2026 · 5 min read

Plenty of people who have never set foot in America still end up with US income. Maybe you rent out a condo in Florida, own a slice of a US business, sold US real estate. The natural question is simple. Does the US want a cut, and if so, how much?

First, Are You a Nonresident?

The US splits the world into two groups. US residents (which includes citizens, green card holders, and people who spend the majority of the year in the country) get taxed on their worldwide income. Everyone else is a nonresident.

The good news for nonresidents is that the US only taxes your US income. Your salary back home, your local savings, your foreign rental property, none of that is Uncle Sam's business. Only the money that comes from inside the US would be potentially taxed.

If you do have US income to report, you usually file a form called the 1040-NR. This is the nonresident version of the regular US tax return.

The Two Flavors of US Income

Not all US income is treated the same way. The US sorts it into two buckets, and the bucket matters a lot.

The first bucket is money you actively work for. Officially called effectively connected income, you can think of it as active US income. Rental income, business profit, and income from a US partnership often (but not always) land here. This income gets taxed at the same graduated rates a regular American pays, and you also get to subtract related expenses first.

The second bucket is passive income like US dividends, certain interest, and royalties. Officially called FDAP income, it stands for Fixed, Determinable, Annual, or Periodical income. This usually gets taxed at a flat 30 percent, unless your specific country has a tax treaty with the US that offers lower rates. The US payer often withholds this tax before the money ever reaches you. So the US tax can already be handled without you filing anything with the US.

That 30 Percent Withholding Is Not Always the End of the Story

When a US payer withholds tax and hands you the leftover income, they send you a form called a 1042-S, 8805, or 8288 showing what tax was withheld. In some cases, withholding already satisfies your obligation and you are done. In other cases, filing a return is required or could actually result in a tax refund, especially if a treaty rate is lower than what was withheld. It depends on the type of income and your situation.

Forms like the W-8BEN, which you give to US banks and brokers, are how you tell them you are a nonresident so they apply the correct treaty rate. Filling it out correctly up front can save you from having to file a US tax return.

Selling US real estate comes with its own withholding rules, and the buyer's side often holds back a chunk of the sale price for the IRS. You can usually reconcile that when you file a 1040-NR.

The Short Version

If you are a nonresident, the US only taxes your US income, not your worldwide income. Active US income like rent and business profit often gets normal graduated rates. Passive income like dividends and interest usually get a flat rate that is often withheld for you. Treaties can lower or remove the tax, and sometimes filing a return can be worthwhile to receive tax withheld back, especially on a sale of real estate.

Most nonresident situations are very manageable once someone maps out which income falls into which bucket and whether a treaty applies. If you have US income and are not sure where you stand, reach out to Waypoint Tax to see how we can help.

This post is general education, not personal tax advice. Your own numbers and your home country's treaty with the US can change the answer, so reach out to Waypoint before you file.

Frequently asked questions

Do nonresidents pay US tax on worldwide income?

No. Nonresidents are taxed only on US income. Foreign salary, foreign savings, and foreign property are outside the US system.

What is the difference between effectively connected income and FDAP income?

Effectively connected income is active US income like rent or business profit, taxed at normal graduated rates with expenses deductible. FDAP is passive US income like dividends and interest, usually taxed at a flat 30 percent that a treaty can reduce.

How do I get the lower treaty rate on US investment income?

Give the US payer a Form W-8BEN so they apply your treaty rate. Filing it correctly up front can even save you from having to file a US return.