Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Nonresident Income and Deductions

Taxation of Nonresidents

Dividend Income

If a nonresident student or scholar invests in the stock market and receives dividend income, it is not considered effectively connected with the person's trade or business of studying, and it's generally taxed at a 30% rate unless a lower treaty rate is applicable. This income is reported on Form 1040-NR, Schedule NEC, Tax on Income Not Effectively Connected With a U.S. Trade or Business.

If the taxpayer properly notified the brokerage firm of their nonresident alien status, the brokerage firm would then report that income to the taxpayer on Form 1042-S and withhold a percentage of it for income tax.

If the student or scholar did not tell the brokerage firm that they are a nonresident alien, it may have been reported on a Form 1099-DIV, Dividends and Distributions, in which case it is likely nothing was withheld from it. In either case, the taxpayer should properly report this income as not effectively connected income on Schedule NEC. If a lower treaty rate applies, the return is Out of Scope for the VITA/TCE Foreign Student and Scholar program. See Publication 4011 for a list of potential treaties relating to dividends.

Top of Form 1040-NR page 4