1040-NR instructions tell-tale
Perusing the latest 1040-NR instructions revealed some interesting information...
Today, I printed off the 2024 1040-NR instructions to start “marking it up” for my 2024 determinations. They KEPT “citizen of the United States” in the U.S. national definition, which is a big deal.
But what may have been there in prior year instructions and I didn’t notice is this:
Breaking this down, they used “includIBLE” (see Includable v Includible). Then, they break out an exception. “Enter ONLY the wages, salaries, etc. REPORTED in box 1 of Form(s) W-2 effectively connected with a U.S. trade or business.” This is a hugely important statement because it shows that JUST BECAUSE some amounts were reported on a W-2, it doesn’t mean that those are “U.S. source” or “income from sources within the United States,” at least not for a nonresident alien individual.
This is telling because it is “well-settled” that wages (especially those reported on a W-2) are income to the recipient. But based on this part from the instructions, “ONLY U.S. source income is included on line 1a as effectively connected wages. DON’T include ANY income on line 1a of Form 1040-NR that isn’t TREATED as effectively connected with a U.S. trade or business EVEN IF it is listed in Line 1a of the Instructions for Form 1040.”
1040 is a whole other ball of wax. See other posts about the difference between a “United States person,” “citizen or resident of the United States,” and “nonresident alien.”
Conclusion: If I file a 1040-NR and receive a W-2, it doesn’t automatically mean it is a “U.S. source” of income. Therefore, “that individual” can decide whether or not he wants to “treat as effectively connected” the amount reported by inclusion in line 1a of the 1040-NR.
N.B. Since 2022, line 1a of 1040-NR also 'casually' says "Total amount from Form(s) W-2", which is the 'total' matching 1040's line+schedule 1.
> Conclusion: If I file a 1040-NR and receive a W-2, it doesn’t automatically mean it is a “U.S.
> source” of income. Therefore, “that individual” can decide whether or not he wants to “treat as > effectively connected” the amount reported by inclusion in line 1a of the 1040-NR.
— I think that, in order to logically conclude that "that individual can decide" and for completeness, we need to state that (1) items reported on W2 are not partitioned by the payor into something like "U.S." or "non-U.S. sources" and (2) payor's characterization is not necessarily equivalent to recipient's characterization. [For (2), compare with 26 CFR 1.61-2 (on wages) and the legal maxim "Whatever money is paid, is paid according to the direction or intention of the payer; whatever money is received, is received according to that of the recipient." 2 Vern. 606; Broom, Max. 810. ]