US VIRGIN ISLANDS Law and Practice Contributed by: Marjorie (Jorie) Roberts, Duncan J.J. Kessler and Jessica McKenney, Marjorie Rawls Roberts PC
The FICA taxes are imposed in equal percentages on both the employer and the employee. The employer collects the employee’s percentage via withhold - ing. The Social Security tax rate is 6.2% on annual wages up to a maximum of USD184,500 for 2025. The Medicare tax rate is 1.45% on all wages without limit. Self-employed individuals are required to pay the employer’s percentage of FICA tax in addition to their own. Additionally, individuals who make over a certain amount (based on filing status) pay an additional 0.9% in Medicare tax. There is no employer match for this additional Medicare tax, but the employer is respon - sible for withholding the 0.9% once an employee’s wages exceed USD200,000 in a year (regardless of filing status). In the case of an individual who is not a bona fide resident of the USVI, the taxation depends on whether the person is a US citizen or US resident or a resident of a foreign country. In the case of a resident of the United States (US citi - zen, resident alien, or a person meeting the physical presence test set out for aliens who do not have a green card in the United States) deriving USVI source income, or income effectively connected with a USVI trade or business, the person must file a return with the IRS and the BIR, and a credit is granted against the US tax liability for taxes paid to the BIR. The per - son must sign each return and must attach Form 8689 (Allocation of Individual Income Tax to the U.S. Virgin Islands), which is used to allocate income and tax liability between the United States and the USVI. A non-resident of both the USVI and the United States who is engaged in a trade or business in the USVI must pay tax on the income effectively connected with that USVI trade or business. The person must file a return with and pay tax on that income to the BIR. A non-resident of both the USVI and the United States who is not engaged in a trade or business in the USVI but who has USVI source income is generally sub - ject to a 10% withholding tax, which is to be paid to the BIR by the USVI payor of the income. However, if the income is interest on a loan secured by USVI real property with a value equal to or greater than the loan, then no withholding tax is due.
The determination of whether someone is a resident alien or non-resident alien of the USVI is made under the same principles under Code Section 7701 (b) as in the United States, but as mirrored to the USVI. An alien (whether resident or non-resident) is an indi - vidual who is not a US citizen. For the purposes of determining whether a person is a resident alien or a non-resident alien under the mirrored Code Section 7701 (b) definition of resident alien and non-resident alien, presence in the United States (meaning the 50 states and the District of Columbia) does not count as residency in the USVI, even though entry to the USVI falls under the immigration laws of the United States (that is, the USVI does not have its own immigration procedures, and US law treats the USVI as part of the United States for all purposes). Exemptions Cash or property received as employment compen - sation by a non-resident of the USVI will not be USVI source income under mirrored Code Section 861 (a) (3) if: • the compensation is earned while the individual is temporarily present in the USVI; • the taxpayer is not present in the USVI for more than 90 days during the taxable year; • the compensation does not exceed USD3,000; and • the employer is either: (a) a foreign person not engaged in a business in the USVI; or (b) a foreign office of a USVI person. If income meets these four requirements, it is exempt - ed from USVI taxation. If income does not meet these four requirements, it is subject to USVI withholding tax at a rate of 10%. Investment Income Investment income consisting of interest and divi - dends is, under Code principles as mirrored to the USVI, generally sourced to the situs of the payor. Rents and royalties are generally sourced to the loca - tion where the property giving rise to the rents and royalties is located.
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