The Commonwealth of the Northern Mariana Islands(p13)

The Commonwealth of the Northern Mariana Islands (CNMI) has its own tax system based partly on the same tax laws and tax rates that apply to the United States and partly on local taxes imposed by the CNMI government.

In general, all individuals with income from the CNMI will file only one return, either to the CNMI or to the United States. Your residency status with regard to the CNMI determines which return you will file. Be sure to check the Special Rules for the CNMI, later, for additional information about filing your tax return.

If you are a U.S. citizen, resident alien, or nonresident alien and a bona fide resident of the CNMI during the entire tax year, file your income tax return with the CNMI.

• Include income from worldwide sources on your CNMI return. In determining your total tax payments, include all income tax withheld by either the CNMI or the United States, any credit for an overpayment of income tax to either the CNMI or the United States, and any payments of estimated tax to either the CNMI or the United States. Pay any balance of tax due with your tax return.
• Generally, if you properly file your return with, and fully pay your income tax to, the CNMI, then you are not liable for filing an income tax return with, or for paying tax to, the United States for the tax year. However, if you were self-employed in 2012, see Self-employment tax, later.

David Gold was a bona fide resident of the CNMI for 2012. He received wages of $30,000 paid by a private employer in the CNMI and dividends of $4,000 from U.S. corporations that carry on business mainly in the United States. He must file a 2012 income tax return with the CNMI Division of Revenue and Taxation. He reports his total income of $34,000 on the CNMI return.

If you are a bona fide resident of the CNMI for the entire tax year, send your return and all attachments to the Division of Revenue and Taxation at the address given earlier.

If you have income from sources within the CNMI and are a U.S. citizen or resident alien, but you are not a bona fide resident of the CNMI during the entire tax year, file your income tax return with the United States.

• Include income from worldwide sources on your U.S. return. In determining your total tax payments, include all income tax withheld by either the United States or the CNMI, any credit for an overpayment of income tax to either the United States or the CNMI, and any payments of estimated tax to either the United States or the CNMI. Pay any balance of tax due with your tax return.  You may also need to complete Form 5074.
  
• You are not liable for filing an income tax return with, or for paying tax to, the CNMI for the tax year.

If you file a U.S. income tax return, attach a completed Form 5074 if you (and your spouse if filing a joint return) have:

• Adjusted gross income of $50,000 or more for the tax year, and
• Gross income of $5,000 or more from sources within the CNMI.

The United States and the CNMI use this form to divide your income taxes.

There is an example of a filled-in Form 5074 in chapter 5.

In certain situations you will not have income from a possession. See De minimis exception under Compensation for Labor or Personal Services in chapter 2.

If you are a citizen or resident alien of the United States but not a bona fide resident of the CNMI during the entire tax year and you are not including a check or a money order, send your return and all attachments to:

Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
USA

If you are including a check or a money order, send your U.S. tax return and all attachments to:

Internal Revenue Service
P. O. Box 1303
Charlotte, NC 28201-1303
USA

If you are a nonresident alien of the United States who does not qualify as a bona fide resident of the CNMI for the entire tax year, you generally must file the following returns.

• A CNMI tax return reporting only your income from sources within the CNMI. In this situation, wages for services performed in the CNMI, whether for a private employer, the U.S. Government, or otherwise, is income from sources within the CNMI.
• A U.S. tax return (Form 1040NR) reporting U.S. source income according to the rules for a nonresident alien. See the instructions for Form 1040NR.

If you are not a bona fide resident of the CNMI during the entire tax year and you are not including a check or a money order, send your U.S. tax return and all attachments to:

Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
USA

If you are including a check or a money order, send your U.S. tax return and all attachments to:

Internal Revenue Service
P. O. Box 1303
Charlotte, NC 28201-1303
USA

Send your CNMI tax return and all attachments to:

Department of Finance
Division of Revenue and Taxation
Commonwealth of the Northern Mariana Islands
P.O. Box 5234 CHRB
Saipan, MP 96950

If you are a citizen of the CNMI (meaning that you were born or naturalized in the CNMI) but not otherwise a U.S. citizen or a U.S. resident alien during the tax year, file your income tax return with the CNMI. Include income from worldwide sources on your CNMI return. Take into account tax withheld by both jurisdictions in determining if there is tax overdue or an overpayment. Pay any balance of tax due with your tax return. Send your return and all attachments to:

Department of Finance
Division of Revenue and Taxation
Commonwealth of the Northern Mariana Islands
P.O. Box 5234 CHRB
Saipan, MP 96950

Special rules apply to certain types of income, employment, and filing status.

If you file a joint return, file your return (and pay the tax) with the jurisdiction where the spouse who has the greater adjusted gross income (AGI) would have to file if you were filing separately. If the spouse with the greater AGI is a bona fide resident of the CNMI during the entire tax year, file the joint return with the CNMI. If the spouse with the greater AGI is a U.S. citizen or resident alien but not a bona fide resident of the CNMI during the entire tax year, file your joint return with the United States. For this purpose, income is determined without regard to community property laws.

Marsha Blue, a U.S. citizen, was a resident of the United States, and her husband, a citizen of the CNMI, was a bona fide resident of the CNMI during the entire tax year. Marsha earned $65,000 as a computer programmer in the United States. Her husband earned $20,000 as an artist in the CNMI. Mr. and Mrs. Blue will file a joint return. Because Marsha has the greater AGI, the Blues must file their return with the United States and report the entire $85,000 on that return.

If you are a member of the U.S. Armed Forces who qualified as a bona fide resident of the CNMI in a prior tax year, your absence from the CNMI solely in compliance with military orders will not change your bona fide residency. If you did not qualify as a bona fide resident of the CNMI in a prior tax year, your presence in the CNMI solely in compliance with military orders will not qualify you as a bona fide resident of the CNMI.

If, under the rule discussed at the beginning of chapter 1 (see Special rule for civilian spouse of active duty member of the U.S. Armed Forces), your tax residence is the CNMI, follow the guidance in the section for bona fide residents under Which Return To File, earlier. However, if your tax residence is one of the 50 states or the District of Columbia and your only income from the CNMI is from wages, salaries, tips, or self-employment, you will be taxed on your worldwide income and file only a U.S. tax return (Form 1040) and a state and/or local tax return, if required. If you have income from the CNMI other than wages, salaries, tips, or self-employment that is considered to be sourced in that possession (see Table 2-1), you may need to file Form 5074 with your U.S. tax return.

Generally, expenses of a move to the CNMI are directly attributable to wages, salaries, and other earned income from the CNMI. Likewise, the expenses of a move back to the United States are generally attributable to U.S. earned income.

If your move was to the CNMI, report your deduction for moving expenses as follows.

• If you are a bona fide resident in the tax year of your move, enter your deductible expenses on your CNMI tax return.
• If you are not a bona fide resident, enter your deductible expenses on Form 3903 and enter the deductible amount on Form 1040, line 26, and on Form 5074, line 20.

If your move was to the United States, complete Form 3903 and enter the deductible amount on Form 1040, line 26.

Under the filing rules explained earlier, individuals with CNMI source income normally will not claim a foreign tax credit on a U.S. income tax return for tax paid to the CNMI.

If you have no U.S. filing requirement, but have income that is effectively connected with a trade or business in the CNMI, you must file Form 1040-SS with the United States to report your self-employment income and, if necessary, pay self-employment tax.

To see if you are required to make payments of estimated income tax and/or self-employment tax to the IRS, get Form 1040-ES.

If you must pay estimated tax, make your payment to the jurisdiction where you would file your income tax return if your tax year were to end on the date your first estimated tax payment is due. Generally, you should make the rest of your quarterly payments of estimated tax to the jurisdiction where you made your first payment of estimated tax. However, estimated tax payments to either jurisdiction will be treated as payments to the jurisdiction with which you file the tax return.

If you make a joint payment of estimated tax, make your payment to the jurisdiction where the spouse who has the greater estimated AGI would have to pay (if a separate payment were made). For this purpose, income is determined without regard to community property laws.

If you make your first payment of estimated tax early, follow the rules given earlier to determine where to send it. If you send it to the wrong jurisdiction, make all later payments to the jurisdiction to which the first payment should have been sent.

To pay by check or money order, send your payment with the Form 1040-ES payment voucher to:

Internal Revenue Service
P.O. Box 1300
Charlotte, NC 28201-1300
USA

To get information on paying electronically (by credit or debit card, or through the Electronic Federal Tax Payment System (EFTPS)), go to www.irs.gov/e-pay.

For information on making estimated income tax payments to the CNMI, see Where To Get Forms and Information, earlier.

A mutual agreement procedure exists to settle cases of double taxation between the United States and the CNMI. See Double Taxation in chapter 4.