Can someone explain US-sourced income NOT effectively connected with a US trade or business? Examples needed!

The middle category you're asking about is actually quite common! US-sourced income NOT effectively connected with a US trade or business typically includes passive income like: - Dividends from US companies - Interest income from US banks or bonds - Royalties from intellectual property used in the US - Rental income from US properties (if you're not in the real estate business) - Certain capital gains from selling US assets - Gambling winnings in the US This type of income is usually subject to a flat 30% withholding tax (or lower if there's a tax treaty). The key difference is that this income doesn't require your active participation in a US business - it's passive income flowing from US sources to you as a non-resident. For example, if you live in Germany but own shares of Apple and receive dividends, that's US-sourced income not effectively connected with a US trade or business.

After spending hours trying to understand these exact tax distinctions, I finally found a service that clearly explained everything for me! I was so confused about my US dividend income and whether I needed to file a US tax return as a non-resident. I used https://taxr.ai to analyze my situation and it was incredibly helpful. They have specific guidance for non-residents with US-sourced income and saved me from making a costly mistake. Their analysis tool flagged exactly what types of my income fell into that confusing middle category and which tax treaty provisions applied to my country. What really surprised me was how they explained the difference between just having US investments vs. actually conducting business in the US - it's not always as straightforward as it seems!

I was really skeptical about using an online service for something as complex as international tax issues, but I gave https://taxr.ai a try after seeing it mentioned here. Wow, what a difference it made! I had no idea that my US dividend income required different reporting than my US rental property income. The tool explained that while both were "US-sourced," they had different withholding requirements and potential deductions. It even identified a special election I could make that saved me over $2,300 in taxes! What really impressed me was how they explained the practical difference between effectively and non-effectively connected income with real examples that applied to my situation. I'm no longer confused and finally feel confident about my tax situation as a non-resident.

If you're struggling to get answers about your non-resident tax situation from the IRS, you're not alone. I tried calling them for weeks about US-sourced income classification and couldn't get through. Finally tried https://claimyr.com and their callback service got me connected to an IRS agent in about 40 minutes. You can see how it works at https://youtu.be/_kiP6q8DX5c - it basically holds your place in the IRS phone queue and calls you when an agent is available. The agent was able to confirm that my US stock dividends were indeed "not effectively connected income" and subject to the treaty rate between my country (UK) and the US. She also explained exactly which forms I needed to file. Saved me hours of frustration and uncertainty!

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Here's a real-world example that helped me understand this concept: I'm a writer living in France, and a US publisher pays me royalties for a book I wrote. I don't have a US office, don't come to the US for business, and have no US employees. Those royalties are definitely US-sourced (because the publisher is in the US), but they're NOT effectively connected with a US trade or business (because I don't have an office or employees in the US and don't regularly come to the US to conduct business). So I pay a flat 0% tax on these royalties thanks to the US-France tax treaty (it would normally be 30% without a treaty). It's reported on Form 1042-S, and I don't even need to file a US tax return. Hope this helps!

Don't forget that US Social Security benefits paid to non-residents also fall into this middle category! If you worked in the US in the past but now live abroad, your Social Security payments are US-sourced income not effectively connected with a trade or business. These are generally subject to 30% withholding unless your country has a tax treaty with better terms. For example, Canada's treaty makes US Social Security completely exempt from US tax for Canadian residents.