Schedule NEC

Schedule NEC (1040-NR) is used to report income that is not effectively connected with a US trade or business. This may include dividends, royalties, and gambling winnings. The tax rate on this type of income is generally 30% unless a treaty provision between your country of residence and the United States provides for a lower rate. It cannot be reduced by deductions and exemptions.

In addition to reporting on Schedule NEC, nonresidents also need to file Form 8938, Statement of Specified Foreign Assets. The form is used for interest and ordinary dividends that are received from a foreign financial asset. For example, if a resident of Poland receives dividends from a corporation in the US, she should report the amount on Schedule NEC (page 4 of Form 1040-NR) and show that the dividends are taxed at 15%, based on a treaty rate. She should also check Tax Treaty Table 1 on the IRS website to see whether her dividends are taxable at the 15% rate in her country.

A similar situation could arise if you are a resident of another country and have scholarship income from a university in the US. Your scholarship income is not effectively connected with your US trade or business, and so the income should be reported on Schedule NEC (page 4 of Form 1040-NR).

How to File Schedule NEC

To file your Schedule NEC 1040-NR, follow the instructions in Chapter Five of IRS Publication 519. You will need to choose the following:

• Your filing status (citizen, resident alien, or nonresident alien) and indicate which categories of income you will include in Schedule NEC.
• For example, if you are a resident alien and are exempt from the substantial presence test in 2023, you must enter your interest, dividends, and capital gain income on Schedule NEC on page 4.
• If you are a non-resident and are not subject to the substantial presence test in 2023, you will enter your interest, dividends, and capital gain on pages 2 and 3.

Schedule NEC can be completed online using a computer or mobile device. You can use an online editor to make changes to the document. Using an online tool to complete your Schedule NEC will save you time and effort. You can also print your forms for easy reference. Our online tool offers multiple fonts and a number of options for displaying information. You can add text and pictures to your Schedule NEC form using the online tool. You can also underline or mark areas that need to be filled out. You can even add a checkmark or symbol to the areas that you have marked.