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Form 1040-NR
Reviewed by Rohan Sasne on Apr 24, 2026
Form 1040-NR is the US Nonresident Alien Income Tax Return, the federal return a nonresident alien files to report US-source income and income effectively connected with a US trade or business, and to settle tax owed beyond what was already withheld at the source.
Form 1040-NR is the U.S. Nonresident Alien Income Tax Return, the federal income tax return a nonresident alien files with the IRS. The IRS describes it on its About Form 1040-NR page, which states that you may need to file the form if you “were a nonresident alien engaged in a trade or business in the United States,” or if you represented a deceased person, estate, or trust that would have to file. In plain terms, it is how a foreign person reports US-source income and income connected to US business activity, and then settles any tax due beyond what was already withheld.
What Form 1040-NR Covers
The return separates a nonresident’s income into two buckets, each taxed differently.
- Effectively connected income. Income that is effectively connected income with a US trade or business is reported on the main body of the return and taxed on a net basis at the same graduated rates that apply to US residents, after allowable deductions.
- Income not effectively connected. US-source income that is not effectively connected, such as fixed or determinable annual or periodical income, is reported on Schedule NEC. The IRS titles that schedule “Tax on Income Not Effectively Connected With a U.S. Trade or Business,” and this income is generally taxed at a flat statutory rate rather than graduated rates.
When a Foreign Contractor Has No Filing Obligation
For a US company engaging a foreign contractor, the threshold question is sourcing. Compensation for personal services is sourced to the place where the work is physically performed. A developer in Brazil who performs every hour of work from Brazil earns foreign-source income, which sits outside US taxation. That contractor generally has no US filing obligation and does not file Form 1040-NR for those payments.
The result flips when the contractor performs services on US soil. Work physically done inside the United States becomes US-source income. Depending on the facts, that US-source income can be effectively connected with a US trade or business and can create a Form 1040-NR filing obligation for the contractor, even if the engagement is short.
Filing Versus Withholding
Tax withheld at the source under the NRA withholding rules is a collection device, not a final accounting. A nonresident with effectively connected income generally still files Form 1040-NR to compute net tax against deductions and to reconcile it with amounts already withheld, which can leave a balance due or generate a refund. Withholding and filing are separate steps, and one does not automatically discharge the other.
Related Terms
- Nonresident Alien: the person who files Form 1040-NR.
- Effectively Connected Income: the income taxed on a net basis on the main return.
- NRA Withholding: the source-withholding regime that Form 1040-NR reconciles against.
Omnivoo Contract Management sorts each foreign contractor payment by source, so US companies can see at a glance which payments are foreign-source and outside US filing and which US-source payments may carry a Form 1040-NR obligation for the contractor.
Frequently asked questions
Who files Form 1040-NR?
A nonresident alien who was engaged in a trade or business in the United States, or who otherwise has US-source income or income effectively connected with a US trade or business, may need to file Form 1040-NR. Per the IRS, you may need to file if you were a nonresident alien engaged in a trade or business in the United States. A person filing for a deceased nonresident, or for an estate or trust that must file, also uses Form 1040-NR.
Does a foreign contractor working entirely abroad file Form 1040-NR?
Generally no. Compensation for personal services is sourced to where the work is physically performed. A foreign contractor who performs all services outside the United States has foreign-source income, which is outside US taxation and typically creates no US filing obligation. The picture changes if the contractor performs services inside the United States, because that portion becomes US-source income.
How does Form 1040-NR relate to effectively connected income?
Income effectively connected with a US trade or business is reported on the main part of Form 1040-NR and taxed on a net basis at graduated rates, after allowable deductions. Income that is not effectively connected, such as US-source FDAP income, is reported on Schedule NEC and generally taxed at a flat rate. The IRS titles Schedule NEC as Tax on Income Not Effectively Connected With a U.S. Trade or Business.
Does withholding remove the need to file Form 1040-NR?
Not always. Withholding at the source under the NRA withholding rules is a collection mechanism, not a final settlement of every tax liability. A nonresident alien with effectively connected income generally must still file Form 1040-NR to compute net tax and reconcile it against amounts withheld, which can produce either a balance due or a refund.
Related Terms
Taxation
Effectively Connected Income (ECI)
Effectively Connected Income (ECI) is income a foreign person earns from a US trade or business, taxed on a net basis at graduated rates rather than the flat 30 percent that applies to FDAP income, and documented to a payer on Form W-8ECI to remove it from NRA withholding.
Taxation
Nonresident Alien (NRA)
A nonresident alien is an individual who is not a US citizen or US national and who has not passed either the green card test or the substantial presence test. An NRA is generally taxed by the US only on US-source income and gives a US payer Form W-8BEN to establish foreign status.
Taxation
NRA Withholding
NRA withholding is the chapter 3 regime under Internal Revenue Code sections 1441 through 1443 that requires a US withholding agent to deduct tax, generally at a 30 percent statutory rate, from US-source FDAP income paid to a nonresident alien or foreign entity, unless a treaty or other exemption reduces the rate.
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