How to Report Virgin Island Income Form W2-VI?


You need to file two tax returns. One for the federal government on form 1040 and the other one for the Virgin Islands. You will not be able to file your U.S. Virgin Islands return electronically. You will be able to file your Federal return electronically.

Enter the W2 in your software as you usually would do. 

Taxes paid to the U.S. Virgin Islands are a refundable credit on the Federal or U.S. Virgin Islands return.

Since your client is NOT a resident of the Virgin Islands:

You will need to split your tax due between the United States and the U.S. Virgin Islands. Get a copy of Form 8689 Allocation of Individual Income Tax to the U.S. Virgin Islands from the IRS website. Fill out Parts I and II with the amounts from the Virgin Islands only that you identified when collecting your information. Do the calculation in Part III. This is the portion of your total tax that is paid to the U.S. Virgin Islands. Finish Form 8689 Part IV using amounts paid to the U.S. Virgin Islands. Ignore line 40. You now need two “identical” tax returns.

On the Form 1040 that will go to the IRS, put the amount from Form 8689 line 35 on Form 1040 line 53 c “8689”. Calculate your total payments to the IRS, Federal income tax withheld from Forms W-2, etc., and fill out Form 1040 lines 61 through 76 using Federal amounts. Place Form 8689 in the return in attachment sequence order (85). Sign and date Form 1040 on page 2 and mail to the IRS Service Center Austin, TX 73301-0215.

On the Form 1040 that will be filed with the Virgin Islands Bureau of Internal Revenue, put Form 8689 as the first page of the return (on top of Form 1040 page 1). Ignore Form 8689 instructions to put amounts from lines 40 (which should be blank) and 44 on Form 1040 line 71. (We are giving you the official V.I. Bureau of Internal Revenue instructions.) Sign and date the return.

How to file an tax return with the V.I. Bureau of Internal Revenue

In addition to the tax return copies that you usually prepare, prepare an additional Virgin Islands filing copy to be file stamped as your proof of filing. The best way to file is to have someone you trust go to the BIR, have the receptionist stamp both copies, and get your copy back to you. If you mail your return to the BIR, enclose the filing copy (with the W-2s, etc., attached), a copy for you, a SASE, and a cover letter asking the BIR to file-stamp your copy and mail it back to you in the enclosed envelope. The mailing address is 9601 Estate Thomas, St. Thomas, VI 00802.