IRS Issues Revised Tax Guide For US Possessions

by Mike Godfrey, Tax-News.com, Washington

11 February 2016

The Internal Revenue Service (IRS) has released a revised version of its 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 – in 2015.

The revised tax guide for individuals receiving income from the US possessions 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 the possession or from sources effectively connected with a trade or business there.

It points out that, for tax years beginning after August 26, 2015, there is a new rule for purposes of determining whether a taxpayer is a bona fide resident of a possession. The new rule will generally allow a taxpayer to be considered present in the possession for any day (up to 30 days) that he or she is outside the possession and outside the United States.

Because most individual taxpayers have a calendar year that ends December 31, this new rule will affect most taxpayers for their 2016 income tax return filed in 2017.

The guide also looks at the rules for filing tax returns when a taxpayer receives 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.

Among the new notifications in the publication, it confirms that, for 2015, the maximum amount of self-employment income subject to social security was USD118,500 (increased from USD117,000), while the maximum income for using the permitted optional methods was USD4,880 (USD4,800 in 2014).

Additional Medicare Tax (AMT) may be required, and a taxpayer may need to report AMT withheld by an employer. Bona fide residents of Puerto Rico and American Samoa who have a federal income tax return filing obligation may also be liable for the 3.8 percent Net Investment Income Tax.

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