Fixed or Determinable Annual or Periodical (FDAP) Income

FDAP income is all income except:

• Gains from the sale of property (not including original issue discount and certain gains that are referred to in

Publication 515 (2026) 37

• Software licenses.

• Transportation.

• Freight.

• Gambling winnings.

• Awards, prizes, and scholarships.

• Interest on outstanding accounts payable arising from the acquisition of goods or services.

Periodic or lump-sum payments. Income can be FDAP income whether it is paid in a series of repeated payments or in a single lump sum. For example, $5,000 in royalty income would be FDAP income whether paid in 10 payments of $500 each or in one payment of $5,000.

Insurance proceeds. Income derived by an insured nonresident alien from U.S. sources upon the surrender of, or at the maturity of, a life insurance policy, is FDAP income and is subject to chapter 3 withholding and is a withholdable payment. This includes income derived under a life insurance contract issued by a foreign branch of a U.S. life insurance company. The proceeds are income to the extent they exceed the cost of the policy.

However, certain payments received under a life insurance contract on the life of a terminally or chronically ill individual before death (accelerated death benefits) may not be subject to tax. This also applies to certain payments received for the sale or assignment of any part of the death benefit under contract to a viatical settlement provider. For more information, go to IRS.gov/Pub525 .

Racing purses (for purposes of chapter 3 withhold- ing). Racing purses are FDAP income and racetrack operators must withhold 30% on any purse paid to a nonresident alien racehorse owner in the absence of definite information contained in a statement filed together with a Form W-8 that the owner has not raced, or does not intend to enter, a horse in another race in the United States during the tax year. If available information indicates that the racehorse owner has raced a horse in another race in the United States during the tax year, then the statement and Form W-8 filed for that year are ineffective. The owner may be exempt from withholding of tax at 30% on the purses if the owner gives you Form W-8ECI, which provides that the income is effectively connected with the conduct of a U.S. trade or business and that the income is includible in the owner’s gross income.

Covenant not to compete. Payment received for a promise not to compete is generally FDAP income. Its source is the place where the promisor forfeited their right to act. Amounts paid to a nonresident alien for their promise not to compete in the United States are subject to chapter 3 withholding and are withholdable payments.