File CNMI Taxes: The Commonwealth of Northern Mariana Islands

Residents of United States territories, such as the Commonwealth of the Northern Mariana Islands, can be subject to tax laws that differ somewhat from those of the U.S. The territory has its own income tax system based partly on the same income tax laws and tax rates as the U.S. Internal Revenue Code and partly on local taxes imposed by the territorial government. For the purpose of tax filing, there are three categories of residents in the territory:

To qualify as a bona fide resident for tax purposes, individuals must meet three tests beginning in tax year 2006: (1) the presence test (generally 183 days in the territory during the tax year, or fewer than 90 days in the United States, or other qualifying conditions), (2) no tax home outside the territory during any part of the taxable year, and (3) no closer connection to the United States or a foreign country than to the territory.

Individuals who change their residency to or from the territory must file Form 8898 with the IRS Philadelphia Service Center.

Failure to file Form 8898 may result in a penalty of $1,000. More information on bona fide residency requirements can be found on the IRS website, here.

Each of these groups is subject to separate provisions in both the tax law of the CNMI and the United States. Bona fide residents who are not self-employed, regardless of citizenship, pay only territorial taxes and do not have to file with the IRS. Non-bona fide U.S. citizens and resident aliens generally file their returns with the IRS. These individuals do not file a return with or pay taxes to the territory.

All self-employed residents, regardless of bona fide residency status, must pay U.S. self-employment tax on net self-employment earnings of $400 or more. Self-employment tax payments contribute to coverage under the social security system for old age, survivor, disability benefits, and hospital insurance.

Self-employed individuals who do not have to file Form 1040 with the United States should use Form 1040-SS to report self-employment tax. This form must be filed with the IRS at the address shown in the instructions.

Residency Categories and Tax Credits

Bona fide residents cannot claim the Earned Income Credit, Additional Child Tax Credit, Credit for Other Dependents, or American Opportunity Tax Credit on U.S. income tax returns filed with the IRS. Residents should contact the Commonwealth of Northern Mariana Islands Division of Revenue and Taxation to determine if similar credits are available on territorial returns and their eligibility requirements.

Contact information for the Division of Revenue and Taxation:

Commonwealth of Northern Mariana Islands Division of Revenue and Taxation 
P.O. Box 5234 
CHRB Saipan, 
MP 96950 
Phone: 670-664-1000 Fax: 670-664-1015 
Website: finance.gov.mp

CNMI Tax Exceptions and Special Rules

Even with these relatively simple, straightforward rules, there are exceptions. Chief among these regards United States military personnel living in the territory and their families. Bona fide residents who are also military personnel will not lose their residency by traveling abroad, as long as such travel is exclusively part of their military commitments. Military personnel, however, who are not bona fide residents will not gain such residency exclusively through their military commitments.

Married couples filing joint returns file the return applicable to the spouse with the higher income. As an example, John works as a consultant in the U.S. and makes $70,000 annually. His wife is a citizen and bona fide resident of the territory; her job provides her with an annual income of only $28,000. This hypothetical couple will file a joint return in the U.S. and must claim the entire $98,000.

Residents may be required to pay estimated territorial tax on income that has had nothing withheld. This includes income from self-employment, rental properties, prizes, or asset sales. Some residents may also be required to pay Medicare taxes.

Additional information can be found in the IRS's Publication 570), , Tax Guide for Individuals With Income From U.S. Possessions.

Frequently Asked Questions

What is the dual tax system in the territory?
The territory operates a dual tax system consisting of Chapter 2 wage and salary tax and Chapter 7 income tax (NMTIT), which mirrors U.S. income tax withholding. Employers withhold both taxes from employee wages. The Chapter 2 tax withheld serves as a non-refundable credit against the Chapter 7 tax liability, reducing the actual Chapter 7 tax owed.

What are my self-employment tax obligations?
All self-employed residents, regardless of bona fide residency status, must pay U.S. self-employment tax on net self-employment earnings of $400 or more. This applies whether or not the earnings are excludable from gross income or whether a U.S. income tax return must otherwise be filed. Self-employed individuals use Form 1040-SS to report this tax to the IRS.

Can I claim federal tax credits on my U.S. return?
Bona fide residents cannot claim the Earned Income Credit, Additional Child Tax Credit, Credit for Other Dependents, or American Opportunity Tax Credit on U.S. income tax returns filed with the IRS. Contact the Division of Revenue and Taxation to determine if similar credits are available on territorial returns.

Do I need to notify anyone if I become or stop being a resident?
Yes. Individuals who change their residency to or from the territory must file Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Territory, with the IRS Philadelphia Service Center by the due date (including extensions) of their income tax return. Form 8898 is filed separately and not attached to Form 1040. Failure to file may result in a $1,000 penalty.

Note: States & U.S. territories may make changes to their tax laws with little notice. We do our best to keep this information up-to-date, but it is provided on an "AS IS" basis. For more see our terms.