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IRS Guidance On US Possessions Revised

by Mike Godfrey,, Washington

18 March 2014

The Internal Revenue Service (IRS) has released a revision of its publication that provides a tax guide for individuals receiving income from the United States possessions – American Samoa, Puerto Rico, the US Virgin Islands, Guam and the Northern Mariana Islands.

The publication discusses the requirements for being considered a bona fide resident of the listed possessions, and gives the rules for determining if such a resident's income is from sources within or effectively connected with a trade or business in those possessions.

It also looks at the rules for filing tax returns when you receive income from any of these possessions. 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.

TAGS: individuals | compliance | tax | business | tax compliance | Northern Mariana Islands | Samoa | Virgin Islands | Internal Revenue Service (IRS) | self-employment | social security | American Samoa | Puerto Rico | United States | individual income tax | Guam

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