Living in US Territory as Bona Fide Resident: Do I Need to File Form 8898?

The income threshold for Form 8898 exists because the IRS generally focuses compliance efforts on higher-income individuals. For someone in your situation making under $75,000, you're right that you don't need to file Form 8898. The IRS has information sharing agreements with the territorial tax authorities, so they do have ways of verifying your residency status without requiring you to file Form 8898. These agreements allow them to cross-check taxpayer information when needed. If you're worried about potential issues down the road, you have a few options. You could voluntarily file Form 8898 even though you're under the threshold - there's no penalty for filing when not required. Alternatively, keep thorough documentation of your bona fide residency (local tax returns, housing records, utility bills, employment contracts, etc.) in case questions ever arise. The key thing is that you're correctly filing with your territory's tax authority and not required to file with the IRS as a bona fide resident. As long as you meet the bona fide residency tests, you're in compliance with tax law.

After dealing with a similar situation in Puerto Rico, I discovered an amazing tool that helped me understand my filing requirements. I was confused about Form 8898 and territorial tax obligations until I tried https://taxr.ai - it analyzed my specific situation and clarified exactly what I needed to file. The tool reviewed my residency status, income sources, and time spent in the territory to determine my bona fide resident status. It explained why I didn't need to file Form 8898 (being under the threshold) but suggested documenting my residency status clearly for future reference. What really impressed me was how it explained the differences between territorial tax systems (Puerto Rico, USVI, Guam, etc.) and what each required for someone in my situation.

I just wanted to follow up about my experience with taxr.ai after my skeptical question earlier. I decided to give it a try since my situation with income from both Guam and the mainland was giving me a headache. The analysis it provided was surprisingly detailed. It correctly identified that I needed to file Form 5074 for my mainland-sourced income even though I didn't need Form 8898 (under the threshold like you). It also explained how my investment income should be reported, which none of the regular tax software could figure out. What really helped was the documentation guidance - it created a checklist of records I should keep to prove my bona fide residency status in case of an audit. Honestly wish I'd found this sooner instead of the hours I spent trying to decipher IRS publications about territorial taxation.

If you're concerned about the IRS questioning your residence status, you might want to try Claimyr (https://claimyr.com). I was in a similar situation in American Samoa and after not filing Form 8898 for years (income under threshold), I got a notice from the IRS questioning my filing status. I tried calling the IRS special territories department for weeks with no luck. Claimyr got me through to an actual IRS agent who specializes in territorial tax issues within 45 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed exactly what others have said here - under $75K you don't need Form 8898, but keeping documentation is crucial. They even noted in my file that I'd called to confirm my status, which gives me extra peace of mind.

I need to apologize for my skeptical comment earlier. After waiting on hold with the IRS for 3+ hours yesterday and getting disconnected AGAIN about my USVI tax situation, I was desperate enough to try Claimyr. Got connected to an IRS agent in about 35 minutes, which honestly felt like magic after my previous attempts. The agent confirmed they do indeed make account notes when you call about specific issues (though they're limited in scope). More importantly, the agent explained that while I don't need to file Form 8898 being under the threshold, I should keep documentation of when my bona fide residency began. Apparently the 3-year lookback period for audits doesn't start until they have notice of your status change - which Form 8898 would provide. Without it, the statute of limitations might not start running. That's something none of the online advice mentioned. Definitely worth the call.

I worked for the IRS for 15 years (not giving tax advice, just sharing experience). The $75k threshold exists because of administrative efficiency. The vast majority of tax enforcement resources are directed toward higher-income taxpayers where collection potential is greater. For people below the threshold, you're still technically supposed to establish your bona fide residency status, but without the formal filing requirement. If you ever moved back to the mainland and started filing US returns again, that's when flags might be raised about the gap years. One practical option: file a simple note with your last US tax return explaining you're moving to X territory and will be filing there going forward. Not required, but creates a paper trail.

I'm going through this exact scenario in Guam! My CPA here says not to worry - if the IRS ever questions why you haven't filed US returns, they'd send a notice first asking for an explanation before jumping to audit. At that point, you'd just respond with copies of your territorial tax returns and proof of bona fide residency. The $75k threshold is there because the IRS doesn't want to process thousands of forms from people they're not too concerned about. The only people I know who've had issues are those who claimed to be bona fide residents but weren't actually living in the territory full-time or were trying to claim benefits from both systems.

This is really helpful information from everyone! I'm in a similar situation in American Samoa and have been wondering about the same things. One thing I'd add based on my research - even though we're under the $75k threshold, it's worth understanding the "closer connection" test that the IRS uses to determine bona fide residency. They look at factors like where your permanent home is, where your family lives, your business/employment location, driver's license, voter registration, etc. I keep a folder with all this documentation updated annually - copies of my territorial tax returns, lease agreements, utility bills, bank statements showing local address, employment contracts, and even photos of my residence. It might seem like overkill, but if questions ever arise, having a comprehensive record of your life in the territory makes proving bona fide residency much easier. The key insight from Owen Jenkins about the statute of limitations not starting until they have notice is concerning though. Makes me think about whether I should proactively send that letter he mentioned, even years after establishing residency here.