Who must file Form 1040-NR?

Nonresident aliens must file Form 1040-NR if they: (1) engaged in a U.S. trade or business during the year; (2) had U.S. source income not effectively connected with a U.S. trade or business (FDAP income) and the tax was not fully withheld; or (3) represent a deceased nonresident alien or a foreign estate or trust. [IRC §871]

What is the difference between FDAP and ECI income?

FDAP (Fixed, Determinable, Annual, or Periodic) income: passive U.S. source income (dividends, interest, rents, royalties). Subject to 30% withholding tax (or lower treaty rate). Reported on Form 1040-NR but generally not subject to graduated rates. ECI (Effectively Connected Income): income from a U.S. trade or business. Subject to graduated U.S. income tax rates (same as U.S. citizens). Deductions are allowed against ECI. [IRC §871(b)]

How do tax treaties reduce U.S. tax on nonresident aliens?

The U.S. has income tax treaties with 60+ countries that may reduce or eliminate U.S. tax on various types of income. Common treaty benefits: reduced withholding rates on dividends (5-15%), interest (0-15%), and royalties (0-15%); exemption for business profits without a permanent establishment; exemption for students and researchers. Treaty benefits are claimed on Form 1040-NR or Form W-8BEN.

What is a dual-status return?

A dual-status return is filed by individuals who were both a U.S. resident and a nonresident alien during the same tax year (e.g., immigrants who arrived during the year, or departing aliens). The resident period is taxed on worldwide income; the nonresident period is taxed only on U.S. source income. The return is complex — Form 1040 is used for the resident period with Form 1040-NR attached for the nonresident period.

What is an ITIN and when is it required?

An Individual Taxpayer Identification Number (ITIN) is a 9-digit number issued by the IRS for individuals who are not eligible for a Social Security number (e.g., nonresident aliens, resident aliens without work authorization, dependents of nonresident aliens). ITINs are required for filing Form 1040-NR and for claiming treaty benefits. ITINs expire if not used on a federal tax return for 3 consecutive years. [IRC §6109]

IRS Form — Nonresident Alien Income Tax Return

Form 1040-NR — U.S. Nonresident Alien Income Tax Return

Form 1040-NR is filed by nonresident aliens who have U.S.-source income. Nonresident aliens are taxed only on U.S.-source income — at graduated rates on effectively connected income (ECI) and at a flat 30% (or reduced treaty rate) on fixed, determinable, annual, or periodical (FDAP) income. For tax professionals, Form 1040-NR is a specialized area — particularly for clients with foreign employees, international students, or cross-border business activities.

✓ Verified 2026 Form 1040-NR Rules

✓ ECI vs. FDAP Distinction Confirmed

✓ Treaty Benefits Rules Confirmed

✓ Substantial Presence Test Confirmed

ECI

Effectively Connected Income — Taxed at Graduated Rates

30%

FDAP Income Default Withholding Rate

Treaty

Tax Treaties May Reduce or Eliminate U.S. Tax

IRC §871

Nonresident Alien Tax Authority

Key Rules and Authority

Rule	Detail
ECI Tax Rate	Graduated — same as U.S. citizens
FDAP Default Rate	30% (or reduced treaty rate)
Standard Deduction	Not available to nonresident aliens
Personal Exemption	Not available (TCJA)
Substantial Presence Test	183 days in 3-year period
Dual Status Return	Year of arrival/departure

ECI vs. FDAP — The Critical Distinction

Nonresident aliens are taxed differently depending on whether their U.S.-source income is "effectively connected income" (ECI) or "fixed, determinable, annual, or periodical" (FDAP) income. ECI — income from a U.S. trade or business — is taxed at the same graduated rates as U.S. citizens and residents, and the nonresident alien can claim deductions against ECI. FDAP income — dividends, interest, rents, royalties, and similar passive income — is taxed at a flat 30% (or lower treaty rate) on the gross amount, with no deductions allowed. The withholding agent (U.S. payer) is responsible for withholding on FDAP income using Form 1042-S.

Frequently Asked Questions

My client is a foreign national who worked in the U.S. for part of the year. Are they a resident or nonresident alien?

The determination depends on the substantial presence test. A foreign national is a U.S. resident alien for tax purposes if they are present in the U.S. for at least 31 days during the current year and 183 days during the 3-year period (counting all days in the current year, 1/3 of days in the prior year, and 1/6 of days in the second prior year). If the substantial presence test is met, the individual files Form 1040 as a resident alien. If not, they file Form 1040-NR as a nonresident alien. In the year of arrival or departure, the individual may be a "dual status" alien and must file both Form 1040 and Form 1040-NR.

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Form 1040-NR — U.S. Nonresident Alien Income Tax Return

Key Rules and Authority

ECI vs. FDAP — The Critical Distinction

Frequently Asked Questions

Master Nonresident Alien Tax Planning for Your Clients

Related Resources

Free Access for Tax Professionals

Form 1040-NR — U.S. Nonresident Alien Income Tax Return

Key Rules and Authority

ECI vs. FDAP — The Critical Distinction

Frequently Asked Questions

Master Nonresident Alien Tax Planning for Your Clients

Related Resources