Schedule NEC – Line-by-Line Instruction For Tax on Income Not Effectively Connected With a U.S. Trade or Business

You must report income on Schedule NEC if you received income from a foreign country. This income may include dividends, royalties, and gambling winnings. In addition, you may be able to claim foreign tax credits. The IRS requires you to include Schedule NEC in your tax return.

Whether a nonresident alien or a U.S. resident, you may be asked to fill out a Schedule NEC or Non-Effectively Connected Income. You’ll need to answer some questions about your income and deductions, and you’ll need to enter your tax rates in the appropriate fields. For example, you might enter 30% for federal taxes and 5% for state taxes.

Often, a nonresident alien (NRA) has income that is not effectively connected with a trade or business in the U.S. that would otherwise be taxable. This is reflected on Schedule NEC of Form 1040-NR.

Schedule NEC Instructions

Schedule NEC must be attached to Form 1040-NR. Here are the full line-by-line instructions for Schedule NEC of Form 1040-NR:

  • Line 1:Dividends and dividend equivalents:
  • Line 1a: Dividends paid by U.S. corporations
  • Line 1b: Dividends paid by foreign corporations
  • Line 1c: Dividend equivalent payments received with respect to section 871(m) transactions
  • Line 2: Interest
  • Line 2a: Mortgage
  • Line 2b: Paid by foreign corporations
  • Line 2c: Other
  • Line 3: Industrial royalties (patents, trademarks, etc.)
  • Line 4: Motion picture or TV copyright royalties
  • Line 5: Other royalties (copyrights, recording, publishing, etc.)
  • Line 6: Real property income and natural resources royalties
  • Line 7: Pensions and annuities
  • Line 8: Social security benefits
  • Line 9: Capital gain from line 18 below
  • Line 10: Gambling—Residents of Canada only. Enter net income in column (c). If zero or less, enter -0-.
  • Line 10a: Winnings
  • Line 10b: Losses
  • Line 11: Gambling winnings—Residents of countries other than Canada.
    • Note: Losses not allowed
  • Line 12: Other…
  • Line 13: Add lines 1a-12 in columns (a)-(d)
  • Line 14: Multiply line 13 by rate of tax at the top of each column
  • Line 15: Tax on income not effectively connected with a U.S. trade or business. Add columns (a) through (d) of line 14. Enter the total amount here and on Form 1040-NRline 23a

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