Tax

Effectively connected income

Also known as ECI

Effectively connected income, or ECI, is income connected with the conduct of a trade or business within the United States. ECI is taxed to non-residents at graduated US rates after deductions. Whether income is ECI depends on facts such as where work is performed and whether the business has US premises or agents.

In plain terms: US-connected business income. If your income is ECI, the US taxes it.

Why it matters

The central question for any foreign owner of a US LLC. A founder living abroad, doing the work abroad, with no US employees, office or dependent agent frequently has no ECI even with US customers — but that is a fact-specific outcome, not a rule to rely on blindly.

Common misunderstanding

Assuming US customers create ECI. Customer location is not the test; where the business is conducted is.

Related terms

• FDAP income
• Form 1040-NR
• Permanent establishment
• Tax treaty
• Withholding tax

Source: IRS — Effectively Connected Income. This is a definition, not tax or legal advice — verify against the primary source before acting.