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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 Payment Source
Determined by
 

Location of Service 

In the United States

Location of Service 

Outside of the United States

Compensation: Employment or Independent Services Where the services
are performed
U.S. Source Income Foreign Source Income
Fellowship/Scholarship (Non-service) U.S. Payer U.S. Source Income Foreign Source Income
Fellowship/Scholarship (Non-service) Foreign Payer Foreign Source Income Foreign Source Income
Royalty Where property is
used
U.S. Source Income U.S. Source Income
Death Payment Where the services
were performed to
accrue benefit
U.S. Source Income Foreign Source Income
Pension Where the services
were performed to
accrue benefit
U.S. Source Income Foreign 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 Payment Source
Determined by
 

Location of Service 

Inside California

Location of Service 

Outside California

Employment Where the services
are performed
California Source Non-California Source
Independent Personal Services Where the services
are performed
California Source Non-California Source
Fellowship/Scholarship U.S. Payer California Source* Non-California Source
Fellowship/Scholarship Foreign Payer Foreign Source Income Foreign Source Income
Death Payment Where the services
were performed to
accrue benefit
California Source Non-California Source
Pension Where the services
were performed to
accrue benefit
California Source Non-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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