IRS Revises Rules on US Possessions

Last updated on March 17, 2023

The IRS has revised the rules for taxpayers who receive income from the U.S. possessions namely the U.S. Virgin Islands, Puerto Rico, American Samoa, Guam and the Northern Mariana Islands. The tax filing rules vary for individuals who receive income from any one or more of the U.S. possessions specified above. Tax News elaborates:

“A taxpayer may have to file a US tax return only, a possession tax return only, or both returns, depending generally on whether he or she is a bona fide resident of the possession. In some cases, a taxpayer may have to file a US return, but will be able to exclude income earned in a possession from US tax.

“Amongst the new notifications in the publication, it is pointed out that the maximum amount of self-employment income subject to social security in 2013 is USD113,700, while the maximum income for using the permitted optional methods is USD4,640. In addition to the Medicare tax, a 0.9 percent Additional Medicare Tax (AMT) may be required to be paid, and a taxpayer may also need to report AMT withheld by an employer.

“Furthermore, beginning in 2013, the Net Investment Income Tax (NIIT) applies at a rate of 3.8 percent on the lesser of an individual’s net investment income or the excess of the individual’s modified adjusted gross income over a threshold amount.

“Bona fide residents of Puerto Rico and American Samoa who have a federal income tax return filing obligation may be liable for the NIIT if the taxpayer’s modified adjusted gross income from non-territory sources exceeds a specified threshold amount.

“Also, bona fide residents must take into account any additional tax liability associated with the NIIT when calculating their estimated tax payments. However, the NIIT does not apply to any individual who is classed by the US as a non-resident alien.”

Taxpayers who receive income from U.S. possessions may keep this information in records to be able to file taxes correctly in 2014.