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Interest Income: U.S. Taxes for Noncitizens (2025 IRS Guide)

This guide covers “Interest Income” within u.s. taxes for noncitizens. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 519 (2025), U.S. Tax Guide for Aliens, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Interest Income

Interest income that is not connected with a U.S. trade or business is excluded from income if it is from:

  • Deposits (including certificates of deposit) with persons in the banking business;

  • Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or credited can be deducted by the association); and

  • Amounts held by an insurance company under an agreement to pay interest on them.

State and local government obligations.

Interest on obligations of a state or political subdivision, the District of Columbia, or a U.S. territory is generally not included in income. However, interest on certain private activity bonds, arbitrage bonds, and certain bonds not in registered form is included in income.

Portfolio interest.

Interest and OID that qualifies as portfolio interest are not subject to chapter 3 (of the Internal Revenue Code) withholding under sections 1441 through 1443. However, such interest may be subject to withholding if it is a withholdable payment, and there is no exception to chapter 4 (of the Internal Revenue Code) withholding under sections 1471 through 1474. For more information, see the discussion of portfolio interest under Withholding on Specific Income in Pub. 515.

To qualify as portfolio interest, the interest must be paid on obligations issued after July 18, 1984, and otherwise subject to withholding. For obligations issued after March 18, 2012, portfolio interest does not include interest paid on debt that is not in registered form. Before March 19, 2012, portfolio interest included interest on certain registered and nonregistered (bearer) bonds if the obligations meet the requirements described below.

Obligations in registered form.

Portfolio interest includes interest paid on an obligation that is in registered form, and for which you have received documentation that the beneficial owner of the obligation is not a U.S. person.

Generally, an obligation is in registered form if:

  • The obligation is registered as to both principal and any stated interest with the issuer (or its agent) and any transfer of the obligation may be effected only by surrender of the old obligation and reissuance to the new holder,

  • The right to principal and stated interest with respect to the obligation may be transferred only through a book entry system maintained by the issuer or its agent, or

  • The obligation is registered as to both principal and stated interest with the issuer or its agent and can be transferred both by surrender and reissuance and through a book entry system.

An obligation that would otherwise be considered to be in registered form is not considered to be in registered form as of a particular time if it can be converted at any time in the future into an obligation that is not in registered form. For more information on whether obligations are considered to be in registered form, see the discussion of portfolio interest under Withholding on Specific Income in Pub. 515.

Obligations not in registered form.

For obligations issued before March 19, 2012, interest on an obligation that is not in registered form (bearer obligation) is portfolio interest if the obligation is foreign targeted. A bearer obligation is foreign targeted if:

  • There are arrangements to ensure that the obligation will be sold, or resold in connection with the original issue, only to a person who is not a U.S. person;

  • Interest on the obligation is payable only outside the United States and its territories; and

  • The face of the obligation contains a statement that any U.S. person who holds the obligation will be subject to limits under the U.S. income tax laws.

Documentation is not required for interest on bearer obligations to qualify as portfolio interest. In some cases, however, you may need documentation for purposes of Form 1099 reporting and backup withholding.

Interest that does not qualify as portfolio interest.

Payments to certain persons and payments of contingent interest do not qualify as portfolio interest. You must withhold at the statutory rate on such payments unless some other exception, such as a treaty provision, applies.

Contingent interest.

Portfolio interest does not include contingent interest. Contingent interest is either of the following.

  1. Interest that is determined by reference to:

    • Any receipts, sales, or other cash flow of the debtor or related person;

    • Income or profits of the debtor or related person;

    • Any change in value of any property of the debtor or a related person; or

    • Any dividend, partnership distributions, or similar payments made by the debtor or a related person.

    For exceptions, see section 871(h)(4)(C).

  2. Any other type of contingent interest that is identified by the Secretary of the Treasury in regulations.

Related persons.

Related persons include the following.

  • Members of a family, including only brothers, sisters, half brothers, half sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.).

  • Any person who is a party to any arrangement undertaken for the purpose of avoiding the contingent interest rules.

  • Certain corporations, partnerships, and other entities. For details, see Nondeductible Loss in chapter 2 of Pub. 544.

Exception for existing debt.

Contingent interest does not include interest paid or accrued on any debt with a fixed term that was issued:

  • On or before April 7, 1993; or

  • After April 7, 1993, pursuant to a written binding contract in effect on that date and at all times thereafter before that debt was issued.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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