U.S. territories, or possessions, are islands under the jurisdiction of the United States which are not States of the United States. U.S. territories can be divided into two groups: Those that have their own governments and their own tax systems (Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, and The Commonwealth of the Northern Mariana Islands), and Those that do not have their own governments and their own tax systems (Midway Island, Wake Island, Palmyra Island, Howland Island, Johnston Island, Baker Island, Kingman Reef, Jarvis Island, and other U.S. islands, cays, and reefs that are not part of any of the fifty states). The governments of the first group of territories impose their own income taxes and withholding taxes on their own residents. To determine the income tax withholding requirements in any of the territories in the first group, you should consult the local tax department of each of these territories. Information about the governments and taxes of some of the U.S. territories may be accessed at State and Local Government on the Net. The addresses of the tax authorities of the U.S. possessions listed in group one above may be found in Publication 570, Tax Guide for Individuals With Income From U.S. Possessions. Residents of the second group of territories are subject to U.S. income taxes and the withholding of federal income taxes. Internal Revenue Code section (IRC) 937 establishes criteria for determining the residency of an individual in the first group of U.S. territories listed above. IRC 937 also establishes the filing requirement for the tax Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession. This form reports each change of residency to or from a U.S. territory. The IRS is authorized to impose a $1,000 penalty on any taxpayer who is liable to file this form, but who fails to file it. Under IRC 937 an individual is generally considered a bona fide resident of a territory if (1) he or she is physically present in the territory for 183 days during the taxable year, (2) does not have a tax home outside the territory during the tax year, and (3) does not have a closer connection to the U.S. or a foreign country. However, U.S. citizens and resident aliens are permitted certain exceptions to the 183-day rule. IRC 937 also establishes new criteria for determining whether income is sourced in a U.S. territory. For information about filing Form 8898 please refer to Residents of U.S. Possessions - Form 8898 Bona Fide Residence. References/Related Topics Federal Income Tax Withholding Publication 15 (Circular E), Employer's Tax Guide Publication 80 (Circular SS), Federal Tax Guide for Employers in the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands Publication 179 (Circular PR), Federal Tax Guide for Employers in Puerto Rico Form 941, Employer's Quarterly Federal Tax Return Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.