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

Form 8689: Allocation of Individual Income Tax to the U.S. Virgin Islands 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. The U.S. Virgin Islands are considered an unincorporated territory of the United States. Residents of the islands are considered U.S. citizens and file taxes with the IRS.

Who Can File Form 8689: Allocation of Individual Income Tax to the U.S. Virgin Islands?

Taxpayers living on the islands 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 federal government.

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. 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.

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

Some taxpayers in the Virgin Islands only file a U.S. tax return, some only file a Virgin Islands tax return, and some file both. Where a person files is largely determined by whether they qualify as a bona fide resident of the Virgin Islands or the mainland U.S.

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. Lines 40 and 45 on form 8689 provide the IRS the information needed to grant that credit.

Qualifying as a Bona Fide Resident

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: Allocation of Individual Income Tax to the U.S. Virgin Islands stipulates that taxpayers who qualify as bona fide residents of the Virgin Islands do not need to file form 8689.

How to File Form 8689: Allocation of Individual Income Tax to the U.S. Virgin Islands

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, St. Thomas, VI 00802. They will accept a signed copy of your U.S. return and process it as an original return. 

Download Form 8689: Allocation of Individual Income Tax to the U.S. Virgin Islands

Here is a link to a downloadable Form 8689: Allocation of Individual Income Tax to the U.S. Virgin Islands.

Key Takeaways

  • Taxpayers living on the islands 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 federal government.
  • Where a person files depends on whether they qualify as a bona fide resident of the Virgin Islands or the mainland U.S.
  • To qualify as a bona fide resident of the U.S Virgin Islands, a person must meet the physical presence test.