Carol, a citizen and resident of Adagio, reports gross income that is effectively connected with a U.S. business. No deductions are allowed against this income, and Carol's U.S. tax rate is a flat 30%.

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Nonresident aliens, like Carol, are allowed to deduct certain expenses and allowances against their effectively connected income, and they are taxed on their net income at graduated rates, not a flat rate, unless a tax treaty specifies otherwise.

Carol, a Citizen and Resident of Adagio, Reports Gross Income