The U.S. Virgin Islands(p17)

The U.S. Virgin Islands has its own tax system based on the same tax laws and tax rates that apply in the United States. An important factor in USVI taxation is whether, during the entire tax year, you are a bona fide resident of the USVI.

In general, bona fide residents of the USVI pay taxes only to the USVI. U.S. citizens or resident aliens (but not bona fide residents of the USVI) with USVI source income pay a portion of the tax to each jurisdiction.

File your tax return with the USVI if you are a U.S. citizen, resident alien, or nonresident alien and a bona fide resident of the USVI during the entire tax year.

• Include your worldwide income on your USVI return. In determining your total tax payments, take into account all income tax withheld by either the USVI or the United States, any credit for an overpayment of income tax to either the USVI or the United States, and any payments of estimated tax to either the USVI or the United States. Pay any balance of tax due with your tax return. For 2006 and subsequent tax years, filing this return with the USVI generally also starts the statute of limitations on assessment of your U.S. income tax.
• You generally do not have to file with the United States for any tax year in which you are a bona fide resident of the USVI during the entire tax year, provided you report and pay tax on your income from all sources to the USVI and identify the source(s) of the income on the return. However, if you have self-employment income, you may be required to file Form 1040-SS with the United States. For more information, see Self-employment tax under Special Rules for the USVI, later.

If you are a bona fide resident of the USVI and have non-USVI source income, you must also file Virgin Islands Form 1040INFO, Non-Virgin Islands Source Income of Virgin Islands Residents, with the Virgin Islands Bureau of Internal Revenue. Attach Form 1040INFO to your USVI tax return before filing. You can get Form 1040INFO by contacting the address or website given earlier.

If you are a bona fide resident of the USVI for the entire tax year, file your return and all attachments with the Virgin Islands Bureau of Internal Revenue at:

Virgin Islands Bureau of Internal Revenue
6115 Estate Smith Bay
Suite 225
St. Thomas, VI 00802

If you are a U.S. citizen or resident alien but not a bona fide resident of the USVI during the entire tax year, you must file your original Form 1040 with the United States and an identical copy of that return with the USVI if you have:

• Income from sources in the USVI, or
• Income effectively connected with the conduct of a trade or business in the USVI.

File your original Form 1040 with the United States and file a signed copy of the U.S. return (including all attachments, forms, and schedules) with the Virgin Islands Bureau of Internal Revenue by the due date for filing Form 1040. Use Form 8689 to figure the amount of tax you must pay to the USVI.

Complete this form and attach it to both the return you file with the United States and the copy you file with the USVI. Figure the amount of tax you must pay to the USVI as follows:

Total tax on U.S. return (after certain adjustments)

×

USVI AGI   Worldwide AGI

Pay any tax due to the USVI when you file your return with the Virgin Islands Bureau of Internal Revenue. To receive credit on your U.S. return for taxes paid to the USVI, include the amounts from Form 8689, lines 40 and 44, in the total on Form 1040, line 72. On the dotted line next to line 72, enter "Form 8689" and show the amounts.

See the illustrated example in chapter 5.

In certain situations you will not have income from a possession. See De minimis exception under Compensation for Labor or Personal Services in chapter 2.

If you are not a bona fide resident of the USVI during the entire tax year, but you have USVI source income, and you are not enclosing a check or a money order, file Form 1040 and all attachments (including Form 8689) with the:

Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
USA

If you are including a check or a money order, send your U.S. tax return and all attachments (including Form 8689) to:

Internal Revenue Service
P. O. Box 1303
Charlotte, NC 28201-1303
USA

File a copy of your U.S. Form 1040 with the Virgin Islands Bureau of Internal Revenue at:

Virgin Islands Bureau of Internal Revenue
6115 Estate Smith Bay
Suite 225
St. Thomas, VI 00802

If you are a nonresident alien of the United States who does not qualify as a bona fide resident of the USVI for the entire tax year, you generally must file the following returns.

• A USVI tax return reporting only your income from sources within the USVI. In this situation, wages for services performed in the USVI, whether for a private employer, the U.S. Government, or otherwise, is income from sources within the USVI.
• A U.S. tax return (Form 1040NR) reporting U.S. source income according to the rules for a nonresident alien. See the instructions for Form 1040NR.

If you are not a bona fide resident of the USVI during the entire tax year, and you are not enclosing a check or a money order, send your U.S. tax return and all attachments (including Form 8689) to:

Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
USA

If you are including a check or a money order, send your U.S. tax return and all attachments (including Form 8689) to:

Internal Revenue Service
P.O. Box 1303
Charlotte, NC 28201-1303
USA

Send your USVI tax return and all attachments to:

Virgin Islands Bureau of Internal Revenue
6115 Estate Smith Bay
Suite 225
St. Thomas, VI 00802

There are some special rules for certain types of income, employment, and filing status.

If you file a joint return, you should file your return (and pay the tax) with the jurisdiction where the spouse who has the greater adjusted gross income (AGI) would have to file if you were filing separately. If the spouse with the greater AGI is a bona fide resident of the USVI during the entire tax year, file the joint return with the USVI. If the spouse with the greater AGI is a U.S. citizen or resident alien of the United States but not a bona fide resident of the USVI during the entire tax year, file the joint return with the United States. For this purpose, income is determined without regard to community property laws.

Marge Birch, a U.S. citizen, was a resident of the United States, and her husband, a citizen of the USVI, was a bona fide resident of the USVI during the entire tax year. Marge earned $55,000 as an architect in the United States. Her husband earned $30,000 as a librarian in the USVI. Mr. and Mrs. Birch will file a joint return. Because Marge has the greater AGI, the Birches must file their return with the United States and report the entire $85,000 on that return.

If you are a member of the U.S. Armed Forces who qualified as a bona fide resident of the U.S. Virgin Islands in a prior tax year, your absence from the U.S. Virgin Islands solely in compliance with military orders will not change your bona fide residency. If you did not qualify as a bona fide resident of the U.S. Virgin Islands in a prior tax year, your presence in the U.S. Virgin Islands solely in compliance with military orders will not qualify you as a bona fide resident of the U.S. Virgin Islands.

If, under the rule discussed at the beginning of chapter 1 (see Special rule for civilian spouse of active duty member of the U.S. Armed Forces), your tax residence is the USVI, follow the guidance in the section for bona fide residents under Which Return To File, earlier. However, if your tax residence is one of the 50 states or the District of Columbia and your only income from the USVI is from wages, salaries, tips, or self-employment, you will be taxed on your worldwide income and file only a U.S. tax return (Form 1040) and a state and/or local tax return, if required. If you have income from the USVI other than wages, salaries, tips, or self-employment that is considered to be sourced in that possession (see Table 2-1), you may need to file Form 8689 with your U.S. tax return. In this case, follow the guidance under U.S. Citizen or Resident Alien (Other Than a Bona Fide Resident of the USVI), earlier.

Generally, expenses of a move to the USVI are directly attributable to wages, salaries, and other earned income from the USVI. Likewise, the expenses of a move back to the United States are generally attributable to U.S. earned income.

If your move was to the USVI, report your deduction for moving expenses as follows.

• If you are a bona fide resident in the tax year of your move, enter your deductible expenses on your USVI tax return.
• If you are not a bona fide resident, enter your deductible expenses on Form 3903 and enter the deductible amount on Form 1040, line 26, and on Form 8689, line 20.

If your move was to the United States, complete Form 3903 and enter the deductible amount on Form 1040, line 26.

Under the filing rules explained earlier, individuals with USVI source income normally will not claim a foreign tax credit on a U.S. income tax return for tax paid to the USVI. However, individuals other than bona fide residents of the USVI may claim a direct credit for such tax (see Form 8689 earlier in this section).

If you have no U.S. filing requirement, but have income that is effectively connected with a trade or business in the USVI, you must file Form 1040-SS with the United States to report your self-employment income and, if necessary, pay self-employment tax.

To see if you are required to make payments of estimated income tax and/or self-employment tax to the IRS, get Form 1040-ES.

To pay by check or money order, send your payment with the Form 1040-ES payment voucher to:

Virgin Islands Bureau of Internal Revenue
6115 Estate Smith Bay
Suite 225
St. Thomas, VI 00802

To get information on paying electronically (by credit or debit card, or through the Electronic Federal Tax Payment System (EFTPS)), go to www.irs.gov/e-pay.

For information on making estimated income tax payments to the Bureau of Internal Revenue, see Where To Get Forms and Information, earlier.

You can get an automatic 6-month extension of time to file your tax return. See Extension of Time To File in chapter 4. Bona fide residents of the USVI during the entire tax year must file a paper Form 4868 with the Virgin Islands Bureau of Internal Revenue. Nonresidents of the USVI should file separate extension requests with the IRS and the Virgin Islands Bureau of Internal Revenue and make any payments due to the respective jurisdictions. However, the Virgin Islands Bureau of Internal Revenue will honor an extension request that is timely filed with the IRS.

A mutual agreement procedure exists to settle cases of double taxation between the United States and the U.S. Virgin Islands. See Double Taxation in chapter 4.