Confused about ECI

[ankur11]

For tax year 2025, I shall be an NRA and shall be filing the 1040-NR in 2026. I recently came to know about 30% NRA withholding.

Is it applicable to me? I am a full time employee and I have my contract till 21 February 2025 with my employer and will continue to receive compensation till 21 February 2025.

[SabrinaD2]

As a nonresident alien (NRA) employed in the United States until February 21, 2025, if your wages are classified as Effectively Connected Income (ECI) they are subject to graduated U.S. federal income tax withholding rates, similar to those for U.S. citizens and residents. See IRS IRS2 information.

ECI Wages- effectively connected with the conduct of a trade or business within the United States

The 30% withholding rate you mentioned generally applies to U.S. source income that is generally not effectively connected with a U.S. trade or business, such as investment income (e.g., dividends, interest) and certain other types of income. See IRS information.

Therefore, generally, your employer should withhold federal income tax from your wages at the graduated rates applicable to ECI, not at the 30% rate designated for non-ECI income.