It depends. In cases of a lawsuit, the reason behind the settlement determines its taxability. If the settlement is related to US source income, then it is taxable to the US.
Private Letter Ruling 150182-05 states: "With regard to the taxation of a settlement payment made to a nonresident alien individual, the nature of the item for which the settlement payment is substituted controls the characterization of the payment."
26 U.S. Code § 862 - Income from sources without the United States defines US source income and includes as US source income "compensation for labor or personal services performed without the United States."
The fact that federal and employment tax was withheld suggests your payment is US source income and taxable.
You can file a nonresident income tax return using our partner Sprintax.com.
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