What Is Form 8689: Allocation of Individual Income Tax to the U.S. Virgin Islands?

Form 8689 is a tax form distributed by the Internal Revenue Service (IRS) for use by U.S. citizens and resident aliens who earned income from sources in the U.S. Virgin Islands (USVI) but are not bona fide residents. The U.S. Virgin Islands are considered an unincorporated territory of the United States. In general, bona fide residents of the islands only pay taxes on USVI income to the local tax jurisdiction. If you are not a bona fide resident, and you have income from the Virgin Islands, then you would need to pay taxes to the Virgin Islands and the IRS.

Key Takeaways

  • U.S. Taxpayers who are not bona fide residents of the U.S. Virgin Islands but earned income there must file Form 8689.
  • Form 8689 determines how much income tax should be allocated to the U.S. Virgin Islands.
  • To qualify as a bona fide resident of the U.S Virgin Islands, a person must meet the physical presence test.

Who Must File Form 8689?

If a person does not qualify as a bona fide resident of the Virgin Islands, they must file form 8689. This applies to both U.S. citizens and resident aliens. These taxpayers must file two identical Form 1040 documents. They file one with the U.S. Virgin Islands and one with the United States. The original Form 1040, along with Form 8689, is sent to the IRS.

To qualify as a bona fide resident of the U.S Virgin Islands, a person must meet the physical presence test. They cannot have a tax home outside of the Virgin Islands or have a closer connection to the mainland U.S. or another country than they do with the U.S. Virgin Islands. For couples filing jointly, the person with a higher adjustable gross income must be able to qualify as a bona fide resident of the Virgin Islands for the couple to be considered bona fide residents when filing.

Form 8689 stipulates that taxpayers who qualify as bona fide residents of the Virgin Islands do not need to file form 8689.

What Is Form 8689 Used For?

Form 8689 determines what portion of income tax should be allocated to the U.S. Virgin Islands. Taxes paid to the Virgin Islands go to the U.S. Virgin Islands Treasury, rather than to the U.S. Treasury. Taxpayers may qualify for a tax credit on their U.S. tax returns for any tax that was allocated to the Virgin Islands, as long as those taxes were actually paid to the Virgin Islands.

Generally, any amount of tax overpaid to the United States will not be applied to the amount owed to the Virgin Islands. Similarly, amounts overpaid to the Virgin Islands will not be applied to the amount a taxpayer owes to the United States. The amount of tax paid to the Virgin Islands is reported on Line 45. This amount is then reported on Line 19 of your Form 1040 and taken as a credit.

Form 8689

All pages of Form 8689 are available on the IRS website.

How to File Form 8689

A taxpayer must file identical tax returns with the United States and the USVI. If they're not enclosing a check or money order, they should file the original Form 1040 (including Form 8689) with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215 USA. If they are including a check or money order, file the original return with the Internal Revenue Service, P.O. Box 1303, Charlotte, NC 28201-1303 USA.

File a signed copy of Form 1040 (with all attachments, forms, and schedules, including Form 8689) with the Virgin Islands Bureau of Internal Revenue, 6115 Estate Smith Bay, Suite 225, St. Thomas, VI 00802. They will accept a signed copy of your U.S. return and process it as an original return.