In the United States, residents are generally taxed on their worldwide compensation regardless of where or for whom the services are performed. Compensation includes cash remuneration and the fair market value of property or services received.1 Foreign earned income exclusions may apply to certain income earned by a citizen or resident for services performed in a country other than the United States.2
Non-residents3 are subject to U.S. tax on income from U.S. sources. U.S. source income that is not effectively connected with a U.S. trade or business (generally investment income) is taxed on a gross basis at a flat 30 percent rate (unless a lower treaty rate applies).4 A non-resident engaged in a trade or business within the United States during the taxable year is taxed on the income effectively connected with the U.S. trade or business, less allowable deductions, at normal graduated rates.5 Generally, income effectively connected with a U.S. trade or business includes compensation for personal services performed in the United States.6
A foreign national who changes from U.S. resident status to non-resident status or from non-resident to U.S. resident status during a year (dual status) is subject to U.S. tax as if the year were divided into two separate periods, one of residence and one of non-residence. The dual status foreign national is generally subject to tax on worldwide income for the period of residence and generally only on U.S. source income for the period of non-residence.7
Under domestic law, if a non-resident is in the United States for 90 days or less during a year, performs services for a foreign employer that is not engaged in a U.S. trade or business, and earns USD3,000 or less for such U.S. services, the compensation is treated as foreign source and is not subject to U.S. tax.8 Most treaties are more liberal and provide exemptions from U.S. tax for income earned with a higher, or no, limit during periods up to 183 days in the United States during a taxable year, or 12-month period, provided certain requirements are met.
The federal income tax rates range from 10 percent to 35 percent.
The official United States currency is the United States Dollar (USD).
Herein, the host country refers to the country to which the employee is assigned. The home country refers to the country where the assignee lives when he or she is not on assignment.
This information reflects United States law as it was in effect at 31 December 2011.
1United States Internal Revenue Code (I.R.C.) § 61(a); Treas. Reg. §1.61-2.
2I.R.C. § 911.
3For purposes of this publication, the term "non-resident" is understood to mean a person who is neither a citizen nor resident of the United States.
4I.R.C. § 871(a).
5I.R.C. § 871(b).
6Treas. Reg. § 1.864-2(a).
7Treas. Reg. § 1.871-13.
8I.R.C. § 861(a)(3).