Amounts Subject to Chapter 3 Withholding

A payment is subject to chapter 3 withholding if it is from sources within the United States, and it is fixed or

34 Publication 515 (2026)

determinable annual or periodical (FDAP) income. Generally, FDAP income excludes most gains but includes certain gains from the disposal of timber, coal, and iron ore, or from the sale or exchange of patents, copyrights, and similar intangible property.

In addition, a payment is subject to chapter 3 withholding if withholding is specifically required, even though it may not constitute U.S. source income or FDAP income. For example, corporate distributions may be subject to chapter 3 withholding even though a part of the distribution may be a return of capital or capital gain that is not FDAP income.

Amounts not subject to chapter 3 withholding. The following amounts are not subject to chapter 3 withholding.

• Portfolio interest paid on obligations that meet certain requirements. See Interest, later.

• Bank deposit interest that is not effectively connected with the conduct of a U.S. trade or business. See In- terest, later.

• Original issue discount on certain short-term obligations. See Original issue discount, later.

• Nonbusiness gambling income of a nonresident alien playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. See Gambling winnings , later.

• Amounts paid as part of the purchase price of an obligation sold between interest payment dates. See In- terest , later.

• Original issue discount paid on the sale of an obligation other than a redemption. See Original issue dis- count , later.

• Insurance premiums paid on a contract issued by a foreign insurer subject to the excise tax under section

• U.S. source transportation income subject to a 4% tax on gross income.