USA Law and Practice Contributed by: Devon M. Bodoh, Joseph M. Pari and Blake D. Bitter, Weil, Gotshal & Manges LLP
3.3 Passive Income See 2.3 Taxation of Resident Individuals for taxation of the receipt of dividends by US-resident individu - als (or pass-through entities owned by US resident individuals). For dividends received by US corpora - tions, certain deductions (eg, partial or full dividend received deductions depending on ownership) may be available. Interest and royalties are generally taxed as ordinary income for US tax residents. See 2.4 Taxa- tion of Non-Resident Individuals for taxation of FDAP (whether received by non-US resident individuals or entities). As described above, US withholding on FDAP may be reduced, or in some cases eliminated, by an applicable income tax treaty. 3.4 Capital Gains See 2.3 Taxation of Resident Individuals and 2.4 Tax- ation of Non-Resident Individuals for a discussion of Employment income is generally taxed as ordinary income, although certain unvested equity interests received as compensation may be taxed at receipt (when they may have little or no value), causing future appreciation to be taxed at capital gains rates upon disposition of such equity interest. the taxation of capital gains. 3.5 Employment Income Employers and employees are subject to federal pay - roll taxes from certain compensation paid to employ - ees for services performed in the US. In addition, cer - tain states may also impose state level income and unemployment taxes. For example, in 2025, employ - ees and employers were each subject to a social security tax of 6.2% on the first USD176,100 of wages paid to an employee and a Medicare tax of 1.45% on the wages paid to an employee. Additionally, an employee must, via withholding by their employer, pay an additional Medicare tax of 0.9% on their wages in excess of USD200,000. Generally, if a non-US resident performs services on behalf of a non-US employer while in the US and is (i) present in the US for 90 days or less in a taxable year; and (ii) the compensation for such services is less than USD3,000, then the US does not tax such income. See 2.6 Definition of Permanent Establishment . To the extent a non-US resident does not qualify for this
Corporations A corporation is generally subject to US federal income tax at a maximum 21% rate. In addition, US states and local governments may levy corporate income taxes on the same (or a similar) tax base, but such taxes are generally deductible from the federal income tax base (subject to certain limitations). There - fore, a corporation operating in the US could face a combined tax rate in excess of 21% and, on average, corporations pay a combined US federal, state and local corporate income tax rate of approximately 26%. The USA also applies a corporate minimum tax that generally imposes a 15% minimum tax on the financial statement income for US corporations (including con - solidated groups of corporations, see 4.3 Pillar Two ) with financial statement income of more than USD1 billion for three taxable years (or USD100 million in the case of a US corporation that is part of a non-US multinational group that has combined financial state - For business profits that are earned by partnerships and disregarded entities, such business profits pass through to the entity’s owners and are taxed at the applicable tax rate of such owner (for individual tax rates, see 2.3 Taxation of Resident Individuals ). Branches To the extent a non-US resident operates a business in the US through a US branch (eg, through a disre - garded LLC), they will be subject to a 30% branch profits tax (subject to reduction by treaty) on the “divi - dend equivalent amount”, which generally consists of effectively connected earnings and profits for a taxable year, calculated as earnings and profits attributable to effectively connected income without diminution by any distributions made during such taxable year, and adjusted by any increase or decrease in the home office’s US assets, net of US liabilities. The branch profits tax is designed to achieve parity between the taxation of US branches and US subsidiaries of for - eign entities. The branch profits tax also applies to interest paid by a US branch to a non-US recipient that is not engaged in a US trade or business and to “branch excess interest” (determined by a formula provided in the Treasury Regulations). ment income of more than USD1 billion). Partnerships and disregarded entities
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