IRS Publication 519:
Income Subject to Tax
Income from sources outside the United States that is not effectively connected with a trade or business in the United States is not taxable if you receive it while you are a nonresident alien. The income is not taxable even if you earned it while you were a resident alien or if you became a resident alien or a U.S. citizen after receiving it and before the end of the year.
[IRS Publication 519, Year 2000, p. 26]
26 C.F.R. §31.3401(a)(6)-1:
PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Subpart E—Collection of Income Tax at Source
§ 31.3401(a)(6)-1 Remuneration for services of nonresident alien individuals.
(a) In general. All remuneration paid after December 31, 1966, for services performed by a nonresident alien individual, if such remuneration otherwise constitutes wages within the meaning of §31.3401(a)–1 and if such remuneration is effectively connected with the conduct of a trade or business within the United States, is subject to withholding under section 3402 unless excepted from wages under this section. In regard to wages paid under this section after February 28, 1979, the term “nonresident alien individual” does not include a nonresident alien individual treated as a resident under section 6013 (g) or (h).
(b) Remuneration for services performed outside the United States. Remuneration paid to a nonresident alien individual (other than a resident of Puerto Rico) for services performed outside the United States is excepted from wages and hence is not subject to withholding.
Services performed outside the U.S
Compensation paid to a nonresident alien (other than a resident of Puerto Rico) for services performed outside the United States [federal territory] is not considered wages and is not subject to graduated withholding or 30% withholding.
26 U.S.C. Sec. 3401(a):
purposes of this chapter, the term ''wages'' means all remuneration
paid to a public official) for services performed by an employee for
the cash value of all remuneration (including benefits) paid in any
than cash; except that such term shall not include remuneration paid
(1) for active service
performed in a month for which such employee is entitled to the
benefits of section 112 (relating to certain combat zone compensation
of members of
Armed Forces of the United States) to the extent remuneration for such
from gross income under such section; or
(2) for agricultural labor (as defined in section 3121(g)) unless the
remuneration paid for
labor is wages (as defined in section 3121(a)); or
(3) for domestic service in a private home, local college club, or local
chapter of a
fraternity or sorority; or
(4) for service not in the course of the employer's trade or business
performed in any
quarter by an employee, unless the cash remuneration paid for such service
or more and such service is performed by an individual who is regularly
by such employer to perform such service. For purposes of this paragraph,
shall be deemed to be regularly employed by an employer during a
quarter only if -
on each of some 24 days during such quarter such individual performs
employer for some portion of the day service not in the course
of the employer's
trade or business;
such individual was regularly employed (as determined under subparagraph
by such employer in the performance of such service during the
(5) for services by a citizen or resident of the United States for a
foreign government or
(6) for such services, performed by a nonresident alien individual,
as may be designated
by regulations prescribed by the Secretary; or
(7) Repealed. Pub. L. 89-809, title I, Sec. 103(k), Nov. 13, 1966, 80
(A) for services
for an employer (other than the United States or any agency thereof)
(i) performed by a citizen of the United States if, at the time
of the payment of such
remuneration, it is reasonable to believe that such remuneration
will be excluded
from gross income under section 911; or
(ii) performed in a foreign country or in a possession of the
United States by such a
citizen if, at the time of the payment of such remuneration,
the employer is
required by the law of any foreign country or possession of the
United States to
withhold income tax upon such remuneration; or
for services for an employer (other than the United States or any agency
performed by a citizen of the United States within a possession
of the United States
(other than Puerto Rico), if it is reasonable to believe that
at least 80 percent of the
remuneration to be paid to the employee by such employer during
year will be for such services; or
for services for an employer (other than the United States or any agency
performed by a citizen of the United States within Puerto Rico,
if it is reasonable to
believe that during the entire calendar year the employee will
be a bona fide
resident of Puerto Rico; or
for services for the United States (or any agency thereof) performed
by a citizen of
the United States within a possession of the United States to
the extent the United
States (or such agency) withholds taxes on such remuneration
pursuant to an
agreement with such possession; or
(9) for services performed by a duly ordained, commissioned, or licensed
minister of a
in the exercise of his ministry or by a member of a religious order
of duties required by such order; or
(A) for services performed
by an individual under the age of 18 in the delivery or
distribution of newspapers or shopping news, not including delivery
to any point for subsequent delivery or distribution; or
(B) for services performed by an individual in, and at the time of,
the sale of newspapers
to ultimate consumers, under an arrangement under which the
or magazines are to be sold by him at a fixed price, his compensation
based on the retention of the excess of such price over the amount at
or magazines are charged to him, whether or not he is guaranteed a
amount of compensation for such services, or is entitled to be credited
unsold newspapers or magazines turned back; or
(11) for services not in the course of the employer's trade or business,
to the extent paid
medium other than cash; or
(12) to, or on behalf of, an employee or his beneficiary -
(A) from or to a
trust described in section 401(a) which is exempt from tax under
section 501(a) at
the time of such payment unless such payment is made to an
employee of the
trust as remuneration for services rendered as such employee and
not as a beneficiary of the trust; or
(B) under or to
an annuity plan which, at the time of such payment, is a plan described
in section 403(a); or
(C) for a payment
described in section 402(h)(1) and (2) if, at the time of such payment,
it is reasonable to believe that the employee will be entitled
to an exclusion under
such section for payment; or
an arrangement to which section 408(p) applies; or
(13) pursuant to any provision of law other than section 5(c) or 6(1)
of the Peace Corps
Act, for service performed as a volunteer or volunteer leader
within the meaning of
such Act; or
(14) in the form of group-term life insurance on the life of an employee;
(15) to or on behalf of an employee if (and to the extent that) at the
time of the payment of
such remuneration it is
reasonable to believe that a corresponding deduction is
allowable under section 217 (determined without regard to section
(A) as tips in any
medium other than cash;
(B) as cash tips
to an employee in any calendar month in the course of his employment
by an employer unless the amount of such cash tips is $20 or
(17) for service described in section 3121(b)(20); 
(18) for any payment made, or benefit furnished, to or for the benefit
of an employee if at
the time of such payment or such furnishing it is reasonable
to believe that the
employee will be able to exclude such payment or benefit from
income under section
127 or 129; 
(19) for any benefit provided to or on behalf of an employee if
at the time such benefit is
provided it is reasonable to believe that the employee will be
able to exclude such
benefit from income under section 74(c), 117, or 132; 
(20) for any medical care reimbursement made to or for the benefit of
an employee under
a self-insured medical reimbursement plan (within the meaning
(21) for any payment made to or for the benefit of an employee if at
the time of such
payment it is reasonable to believe that the employee will be
able to exclude such
payment from income under section 106(b).
IRS Website, Wages Paid to Aliens and Citizens Abroad
Pay that is not wages
Employment for which the pay is not considered wages (for graduated
income tax withholding) includes, but is not limited to, the following
Agricultural labor if the total cash wages paid to an
individual worker during the year is less than $150
and the total paid to all workers during the year is
less than $2,500. But even if the total amount paid
to all workers is $2,500 or more, wages of less than
$150 per year paid to a worker are not subject to income
tax withholding if certain conditions are met. For these
Publication 51 (Circular A), Agricultural Employer's
. For further discussion of withholding
and reporting taxes on foreign agricultural workers
in the United States refer to
Foreign Agricultural Workers
Services of a household nature performed in or about
the private home of an employer, or in or about the
clubrooms or house of a local college club, fraternity,
or sorority. A local college club, fraternity, or sorority
does not include an alumni club or chapter and may not
be operated primarily as a business enterprise. Examples
of these services include those performed as a cook,
janitor, housekeeper, governess, gardener, or houseparent.
Certain services performed outside the course of the
employer's trade or business for which cash payment
is less than $50 for the calendar quarter.
Services performed as an employee of a foreign government,
without regard to citizenship, residence, or where services
are performed. These include services performed by ambassadors,
other diplomatic and consular officers and employees,
and nondiplomatic representatives. They do not include
services for a U.S. or Puerto Rican corporation owned
by a foreign government.
Services performed within or outside the United States
by an employee or officer (regardless of citizenship
or residence) of an international organization designated
under the International Organizations Immunities Act.
Services performed by a duly ordained, commissioned,
or licensed minister of a church, but only if performed
in the exercise of the ministry and not as an employee
of the United States, a U.S. possession, or a foreign
government, or any of their political subdivisions.
These also include services performed by a member of
a religious order in carrying out duties required by
Tips paid to an employee if they are paid in any medium
other than cash or, if in cash, they amount to less
than $20 in any calendar month in the course of employment
For further discussion about federal income tax withholding
and reporting on payments made to employees of foreign governments
and international organizations refer to
Persons Employed by a Foreign Government or International Organization.
For further discussion about Social Security and Medicare taxes
on payments made to employees of foreign governments and international
organizations refer to
Persons Employed by a Foreign Government or International Organization
Services performed outside the U.S
Compensation paid to a nonresident alien for services performed
outside the United States is not considered wages and is not subject
to graduated withholding or 30% withholding.
26 C.F.R. §31.3401(a)(11)-1: Remuneration other than in cash for service
not in the course of employer's trade or business
Title 26: Internal Revenue
PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Subpart E—Collection of Income Tax at Source
§ 31.3401(a)(11)-1 Remuneration other than in cash for
service not in the course of employer's trade or business.
(a) Remuneration paid in any medium
other than cash for services not in the course of the employer's
trade or business is excepted
from wages and hence is not subject to withholding. Cash
remuneration includes checks and other monetary media of exchange.
Remuneration paid in any medium other than cash, such as lodging,
food, or other goods or commodities, for services not in the course
of the employer's trade or business
does not constitute wages. Remuneration paid in any medium other
than cash for other types of services does not come within this
exception from wages. For provisions relating to cash remuneration
for service not in the course of employer's trade or business, see
(b) As used in this section, the term “services not in the course
of the employer's trade or business” has the same meaning as when
used in §31.3401(a)(4)–1
26 C.F.R. §31.3401(a)-3 Amounts deemed wages
under voluntary withholding agreements
(a) In general.
Notwithstanding the exceptions to the definition of wages specified
in section 3401(a) and the regulations thereunder, the term “wages”
includes the amounts described in paragraph (b)(1) of this section with
respect to which there is a voluntary withholding agreement in effect
under section 3402(p). References in this chapter to the definition
of wages contained in section 3401(a) shall be deemed to refer also
to this section (§31.3401(a)–3).
for services. (1) Except as provided in subparagraph (2) of this paragraph,
the amounts referred to in paragraph (a) of this section include
any remuneration for services performed by an employee for an employer
which, without regard to this section, does not constitute wages under
section 3401(a). For example, remuneration for services performed
by an agricultural worker or a domestic worker in a private home (amounts
which are specifically excluded from the definition of wages by section
3401(a) (2) and (3), respectively) are amounts with respect to which
a voluntary withholding agreement may be entered into under section
3402(p). See §§31.3401(c)–1 and 31.3401(d)–1 for the definitions of
“employee” and “employer”.
26 C.F.R. §31.3402(p)-1 Voluntary withholding agreements.
26 C.F.R. § 31.3402(p)-1 Voluntary withholding agreements.
(a) In general. An employee and his employer may enter into an agreement
under section 3402(b) to provide for the withholding of income tax
upon payments of amounts described in paragraph (b)(1) of §31.3401(a)–3,
made after December 31, 1970. An agreement may be entered
into under this section only with respect to amounts which are includible
in the gross income of the employee under section 61, and must be
applicable to all such amounts paid by the employer to the employee.
The amount to be withheld pursuant to an agreement under section
3402(p) shall be determined under the rules contained in section
3402 and the regulations thereunder. See §31.3405(c)–1, Q&A–3 concerning
agreements to have more than 20-percent Federal income tax withheld
from eligible rollover distributions within the meaning of section
5 U.S.C. §8501(2) "Federal wages"
TITLE 5 >
PART III >
Subpart G >
CHAPTER 85 >
SUBCHAPTER I > § 8501
§ 8501. Definitions
For the purpose of
wages” means all pay and allowances, in cash and in kind, for Federal
Security Program Operations Manual System (POMS), section RS01401.005:
RS 01401.005 Wages Defined
Wages means all remuneration
for employment including
the cash value of all remuneration paid in any medium other than
cash, unless specifically excluded under section
209 of the Social Security Act (Act). The name given the payment
is not controlling in determining whether it constitutes wages.
Payments may be paid on an hourly, daily, weekly, biweekly, monthly,
yearly or on a piecework or percentage basis.
Wage exclusions are payments that are either totally or partially
excluded from the definition of wages under section
209 of the Act.
Wage credits are deemed dollar amounts credited to a veteran's
earnings record for active duty prior to 1957 and to the earnings
records of uniformed service members on active duty after 1956.
WARNING!: The red boldfaced
and underlined words above are "words of art" defined in the Classification
Act of 1923, 42 Stat. 1488, and they refer ONLY to federal and not private
The Antelope, 23 U.S. 66; 10 Wheat 66; 6 L.Ed. 268 (1825):
"Every man has a natural
right to the fruits of his own labor, is generally admitted; and no
other person can rightfully deprive him of those fruits, and appropriate
them against his will..."
Antelope, 23 U.S. 66; 10 Wheat 66; 6 L.Ed. 268 (1825)]
Commercial League Association of America v. People ex. rel. Needles, Auditor, 90 Ill. 166 (1878):
"The object of the statute,
no doubt, was to prevent the corporation from making dividends of profits
among the members, as do corporations organized for pecuniary profit;
and while the statute might subserve a useful purpose if construed in
this manner, we fail to perceive any benefit which would result if a
member of the association, who happened to fill an office, should be
deprived of receiving compensation for his labor as an officer.
Compensation for labor can not be regarded as profit, within
the meaning of the law. The word "profit," as ordinarily used,
means the gain made upon any business or investment--a different thing
altogether form mere compensation for labor."
Edwards v. Keith, 231 Fed 1:
"One does not derive income by rendering services and charging
[Edwards v. Keith, 231 Fed 1]
Conner v. US, 303 F.Supp 1187 (1969) on page 1191:
"If there is no gain there is no income... Congress has taxed
income not compensation."
[Conner v. US, 303 F.Supp 1187 (1969) on page 1191]
Wilby v. Mississippi, 47 S 465:
"It certainly was not the intention of the legislature to levy
a tax upon honest toil and labor."
[Wilby v. Mississippi, 47 S 465]
Stapler v. US, 21 F.Supp 737, 739(1937):
"Income is not a wage or compensation for any type of labor."
[Stapler v. US, 21 F.Supp 737, 739(1937)]
U.S. v. Ballard 400 F2d 404 (1976):
"The general term 'income' is not defined in the Internal Revenue
[U.S. v. Ballard 400 F2d 404 (1976)]
Spring Valley Water Works v. Barber 33 P 735:
"A right common in every citizen such as the right to own property
or to engage in business of a character not requiring regulation
CANNOT, however, be taxed as a special franchise by first prohibiting
its exercise and then permitting its enjoyment upon the payment
of a certain sum of money."
[Spring Valley Water Works v. Barber 33 P 735]
Tennessee Supreme Court in Jack Cole v. Commissioner MacFarland
337 SW2d 453 (1960):
"The right to receive income or earnings is a right belonging
to every person, and realization and receipt of income is therefore
not a "privilege that can be taxed." [from:Taxation West Key 933]
[Jack Cole v. Commissioner MacFarland 337 SW2d 453 (1960):]
In this 1960 case, the Tennessee Supreme Court also quoted
prior decisions that defined the term `privilege' in contradistinction
"Legislature ... cannot name something to be a taxable privilege
unless it is first a privilege." "Privileges are special rights,
belonging to the individual or class, and not to the mass; properly,
an exemption from some general burden, obligation or duty; a right
peculiar to some individual or body"
McCulloch v. Maryland, 4 Wheat 316:
"If it could be said that the state had the power to tax a right,
this would enable the state to destroy rights guaranteed by the
constitutions through the use of oppressive taxation. ... The power
to tax involves the power to destroy."
[McCulloch v. Maryland, 4 Wheat 316]
Butcher's Union v. Crescent City 111 U.S. 746 (1884):
"The property which every man has in his own labor, as it is
the original foundation of all other property, so it is the most
sacred and inviolable. ... to hinder his employing this strength
and dexterity in what manner he thinks proper without injury to
his neighbor, is a plain violation of this most sacred property."
Union v. Crescent City 111 U.S. 746 (1884)]
Oliver v. Halstead 86 SE 2d 859 (1955):
"There is a clear distinction between 'profit' and 'wages' or
compensation for labor. Compensation for labor cannot be regarded
as profit within the meaning of the law."
[Oliver v. Halstead 86 SE 2d 859 (1955)]
Stratton's Independence v. Howbert, 231 U.S. 309, 45 (1913):
"income ... may be defined as the gain derived from capital or
from labor or from both combined."
Independence v. Howbert, 231 U.S. 309, 45 (1913)]
Eisner v. Macomber, 252 U.S. 189 (1920):
[subsequently reaffirmed in Goodrich v. Edwards,
255 US 527 (1921):]
- "... it becomes essential to distinguish between what is, and
what is not 'income'...
- "Congress may not, by any definition it may adopt, conclude
the matter, since it cannot by legislation alter the Constitution,
from which alone it derives its power to legislate, and within whose
limitations alone, that power can be lawfully exercised...."
- "Income may be defined as gain derived from capital, from labor
or from both combined, provided it be understood to include profits
gained through sale or conversion of capital assets."
In the 1959 Tax Court case Penn Mutual Indemnity Co. v. Commissioner
(32 Tax Court page 681):
"The rule of Eisner v. Macomber has been reaffirmed on so many
occasions that citation of the cases to this effect would be unnecessarily
burdensome. To depart from the rule at this late date would ignore
the sound principles upon which that case was decided and would
throw into confusion the fundamental income tax structure and law
as it has developed in the almost half century which has elapsed
since adoption of the 16th amendment. That there cannot be 'income'
without a 'gain' accords with the common understanding of the term,
a test of construction which is particularly appropriate in our
system of self-assessed Federal income tax... Moreover, that which
is not income in fact manifestly cannot be made such by the legislative
expedient of calling it income...."
So. Pacific v. Lowe 238 F. Supp 736, 247 U.S. 330 (1918):
"'income' as used in the statute should be given a meaning so
as not to include everything that comes in. The true function of
the words 'gains' and 'profits' is to limit the meaning of the word
Pacific v. Lowe 238 F. Supp 736, 247 U.S. 330 (1918)]
Laureldale Cemetery Assoc. v. Matthews, 345 A 239, and 47 A.2d
"Reasonable compensation for labor or services rendered is not
[Laureldale Cemetery Assoc. v. Matthews, 345 A 239, and 47 A.2d
Murdock v. Pennsylvania, 319 US 105, at 113 (1943):
"A state may not... impose a charge for the enjoyment of a right
granted by the Federal constitution."
[Murdock v. Pennsylvania, 319 US 105, at 113 (1943)]
Magnano Co. v. Hamilton 292 U.S. 40 (1934):
"The power to tax the exercise of a [right] ... is the power
to control or suppress its enjoyment."
Co. v. Hamilton 292 U.S. 40 (1934):]
President Jefferson, concluding his first inaugural address,
March 4, 1801:
"... a wise and frugal government, which shall restrain men from
injuring one another, which shall leave them otherwise free to regulate
their own pursuits of industry and improvement, and shall not take
from the mouth of labor the bread it has earned. This is the sum
of good government… "
Spreckels Sugar Ref. Co. v. Mclain, 192 U.S. 397; 24 SCt 382 (1904):
"the citizen is exempt from taxation unless the same is imposed
by clear and unequivocal language".
Sugar Ref. Co. v. Mclain, 192 U.S. 397; 24 SCt 382 (1904)]
Redfield v. Fisher, 292 P 813, pg 819 (1930):
"The individual, unlike the corporation, cannot be taxed for
the mere privilege of existing. The corporation is an artificial
entity which owes its existence and charter powers to the state:
but the individuals' right to live and own property are natural
rights for the enjoyment of which an excise cannot be imposed."
[Redfield v. Fisher, 292 P 813, pg 819 (1930)]
Long v. Ramussen, 281 F 236, 238 (1922):
"The revenue laws are a code or system in regulation of tax assessment
and collection. They relate to taxpayers, and not to non-taxpayers.
The later are without their scope. No procedure is prescribed for
non-taxpayers, and no attempt is made to annul any of their rights
and remedies in due course of law. With them Congress does not assume
to deal, and they are neither of the subject nor of the object of
the revenue law."
[Long v. Ramussen, 281 F 236, 238 (1922), Reaffirmed in Gerth
v. US, 132 F Supp 894 (1955) and in Economy Heating Co. v. US, 470
F2d 585 (1972)]
Regal Drug Co v. Wardell, 260 US 386 (1922):
"Congress may not, under the taxing power, assert a power not
delegated to it by the Constitution."
Drug Co v. Wardell, 260 US 386 (1922)]
Hurtado v. California, 110 U.S. 516 (1884):
"The state cannot diminish the rights of the people."
v. California, 110 U.S. 516 (1884)]
Sherar v. Cullen, 481 F.2d 946 (1973)
"... there can be no sanction or penalty imposed upon one because
of his exercise of constitutional rights"
[Sherar v. Cullen, 481 F.2d 946 (1973)]
Miller v. US, 230 F.2d 486 (1956)
"The claim and exercise of a Constitutional right cannot thus
be converted into a crime."
[Miller v. US, 230 F.2d 486 (1956)]
"First, wages are income.
Carter v. Commissioner, 784 F.2d 1006, 1009 (9th Cir.1986).
Second, paying taxes is not voluntary. Id. Third, placing
the burden of proof on the taxpayer does not violate due process.
Rockwell v. Commissioner, 512 F.2d 882, 885 (9th Cir.),
423 U.S. 1015, 96 S.Ct. 448, 46 L.Ed.2d 386 (1975). Finally,
failing to provide a taxpayer with an administrative fact finding
hearing does not violate due process. See
Nunley v. Commissioner, 758 F.2d 372, 373 (9th Cir.1985)
Cafeteria & Restaurant Workers, Local 473 v. McElroy, 367
U.S. 886, 894-95, 81 S.Ct. 1743, 1748-49, 6 L.Ed.2d 1230 (1961));
Rockwell, 512 F.2d at 887. Thus, the tax court appropriately
dismissed Wilcox's petition."
[Wilcox v. C.I.R., 848 F.2d 1007 (C.A.9,1988)]
"Woe to him who builds his house by unrighteousness
And his chambers by injustice,
Who uses his neighbor's service without wages
And gives him nothing for his work,"
"You have sown much, and bring in little;
You eat, but do not have enough;
You drink, but you are not filled with drink;
You clothe yourselves, but no one is warm;
And he who earns wages,
Earns wages to put into a bag with holes."
1:6, Bible, NKJV; MORAL: Don't earn "wages"!]
"Now to him who works, the wages are not counted as
grace but as debt. "[Romans
4:4, Bible, NKJV]
"For the wages of sin is death, but the gift of God
is eternal life in Christ Jesus our Lord." [Romans
6:23, Bible, NKJV]
1 Tim. 5:18:
For the Scripture says, "You shall not muzzle an ox while
it treads out the grain," [ Deuteronomy 25:4] and, "The laborer
is worthy of his wages." [1
Tim. 5:18, Bible, NKJV]
Rich Oppressors Will Be Judged
Danger of Riches; Patience and Prayer
"Come now, you rich, weep and howl for your miseries that
are coming upon you! 2Your riches
are corrupted, and your garments are moth-eaten.
3Your gold and silver are corroded,
and their corrosion will be a witness against you and will eat your
flesh like fire. You have heaped up treasure in the last days.
4Indeed the wages of the laborers
who mowed your fields, which you kept back by fraud, cry out; and
the cries of the reapers have reached the ears of the Lord of Sabaoth.[a]
5You have lived on the earth in pleasure
and luxury; you have fattened your hearts as[b]
in a day of slaughter. 6You have condemned,
you have murdered the just; he does not resist you. " [James
5:1-6, Bible, NKJV]
"You shall not oppress a hired servant who is poor and needy,
whether one of your brethren or one of the aliens who is in your
land within your gates. 15Each day
you shall give him his wages, and not let the sun go down on it,
for he is poor and has set his heart on it; lest he cry out against
you to the LORD, and it be sin to you. " [Deut.
24:14-15, Bible, NKJV]
"You shall not cheat your neighbor, nor rob him. The wages
of him who is hired shall not remain with you all night until morning.
19:13, Bible, NKJV]