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Northern Mariana Islands Taxes: What You Need to Know

Federal, State, and Local Tax Withholding in the Northern Mariana Islands in 2024

Residents of the Northern Mariana Islands are subject to federal tax withholding similar to those living in mainland U.S. states. Federal tax rates range from 10% to 37% for 2024, depending on income. The income tax brackets remain progressive, meaning that higher earners pay a larger proportion of their income in taxes compared to those with lower incomes.

• 10% on income up to $11,000
• 12% on income from $11,001 to $44,725
• 22% on income from $44,726 to $95,375
• 24% on income from $95,376 to $182,100
• 32% on income from $182,101 to $231,250
• 35% on income from $231,251 to $578,125
• 37% on income over $578,125

(Source) 

The Northern Mariana Islands, however, operates under a unique relationship with the United States. For tax purposes, it is considered a U.S. territory, and local tax rules follow a “mirror” system where the federal tax law generally applies, but with some adjustments. Residents must file their taxes with the Northern Mariana Islands tax authority, with rates and credits generally mirroring the U.S. federal system.

Unlike many U.S. states, the Northern Mariana Islands does not have its own individual income tax system beyond the federal mirror tax, which simplifies tax withholding for residents.

Local Taxes

There are no local income taxes in the Northern Mariana Islands. However, there is a Business Gross Revenue Tax (BGRT), which affects businesses operating in the territory but not directly the employees through payroll withholding. The BGRT varies depending on the type and size of business.

In the Northern Mariana Islands, contributions to the Federal Insurance Contributions Act (FICA) are similar to those in other U.S. jurisdictions. FICA comprises two primary components: Social Security and Medicare, both of which are mandated payroll taxes that provide funding for important social programs.

FICA

Social Security Contributions

For 2024, Social Security taxes in the Northern Mariana Islands are set at 6.2% of wages. This rate applies to both employees and employers. The income ceiling for Social Security contributions is $168,600, meaning only earnings up to this amount are subject to the 6.2% tax. This cap is known as the “wage base limit,” and it is adjusted annually to account for changes in average national wages. Social Security contributions go toward benefits for retirees, survivors, and disabled individuals, offering critical financial support for these groups.

Both employees and employers contribute equally to Social Security, so effectively, for every dollar earned up to the cap, a combined rate of 12.4% (6.2% from the employee and 6.2% from the employer) is paid into the Social Security system.

Medicare Contributions

Medicare taxes also apply to residents of the Northern Mariana Islands at the same rates as in the U.S. mainland. For 2024, the Medicare tax rate is 1.45% on all wages, without a cap. This means that unlike Social Security, there is no limit on the amount of income subject to the Medicare tax.

Additionally, there is an extra 0.9% Medicare tax for high earners. This additional tax, known as the “Additional Medicare Tax,” applies to wages, self-employment income, and other compensation exceeding $200,000 for single filers and $250,000 for married couples filing jointly. This means that those with higher incomes will pay a total of 2.35% (1.45% standard rate + 0.9% additional rate) for Medicare on the amount of income that exceeds the $200,000 threshold. Employers, however, are not required to match this additional 0.9% contribution; it is solely the responsibility of the employee.

Employer Contributions

Employers in the Northern Mariana Islands are required to match employee contributions for both Social Security (6.2%) and Medicare (1.45%). This means that for most employees, an equal percentage is paid by their employers to fund these programs. This shared burden between employers and employees is intended to lessen the financial load on individual workers while ensuring adequate funding for both Social Security and Medicare programs.

Absence of Local Insurance Contributions

In contrast to some states and territories, the Northern Mariana Islands do not impose any additional local insurance contributions or state-level payroll taxes for programs like unemployment insurance or disability insurance. This is a significant difference compared to other areas where employers might also have to pay into local funds for worker benefits, such as state unemployment insurance (SUI) or temporary disability insurance. The lack of such additional contributions simplifies payroll processing for employers and limits the overall payroll deductions for employees.

Summary

• Social Security: 6.2% on wages up to $168,600 for both employees and employers.
• Medicare: 1.45% on all wages, plus an additional 0.9% for high earners exceeding $200,000 (only for the employee).
• Employer Contributions: Employers match the 6.2% Social Security and 1.45% Medicare for each employee, but do not contribute the additional 0.9%.
• Local Taxes: No additional local insurance contributions, such as state-level unemployment or disability insurance taxes, are imposed in the Northern Mariana Islands

Pre-Tax Deductions (Medical Insurance, 401K, etc.) in the Northern Mariana Islands in 2024

Residents of the Northern Mariana Islands are eligible for pre-tax deductions that follow the federal guidelines of the United States, as the territory uses a “mirror” tax system that aligns its tax laws with federal regulations. Pre-tax deductions are particularly advantageous because they reduce the taxable income, thereby lowering an individual’s overall tax burden. These deductions are made before income taxes are calculated, which means they directly lower the amount of income subject to tax. Below are the common types of pre-tax deductions available to residents in the Northern Mariana Islands in 2024:

Health Insurance Premiums

Employer-sponsored health benefits, including medical, dental, and vision insurance, can be paid with pre-tax dollars. Contributions for these insurance plans are deducted from an employee’s paycheck before federal income and payroll taxes are calculated. This means that employees effectively reduce their taxable income by the amount of their health insurance premiums, resulting in lower overall taxes. By reducing the taxable income at the source, employees can see significant tax savings, especially if they are contributing a substantial amount toward their health coverage.

401(k) Retirement Plan Contributions

Residents of the Northern Mariana Islands can also benefit from making pre-tax contributions to a 401(k) retirement plan. Contributions are deducted from the employee’s paycheck before taxes are calculated, which reduces the individual’s taxable income. In 2024, the contribution limit for 401(k) plans is set at $22,500, with an additional $7,500 available for employees aged 50 and older as a catch-up contribution. This means that older workers can contribute up to $30,000 per year on a pre-tax basis, helping them to boost their retirement savings significantly while enjoying an immediate tax benefit. These contributions grow tax-deferred, meaning that earnings on the investments are not taxed until they are withdrawn in retirement, providing an added layer of tax advantage.

Health Savings Accounts (HSAs)

Residents enrolled in high-deductible health plans (HDHPs) can contribute to a Health Savings Account (HSA) on a pre-tax basis. HSAs are triple tax-advantaged: contributions are made pre-tax, earnings grow tax-free, and withdrawals used for qualified medical expenses are also tax-free. In 2024, the HSA contribution limit is $4,150 for individuals and $8,300 for families. HSAs are an effective tool for saving towards current and future healthcare expenses, as any unused funds roll over year to year, allowing individuals to build substantial savings for healthcare needs in retirement.

Flexible Spending Accounts (FSAs)

In 2024, the contribution limit for FSAs is set at $3,050. Contributions are made pre-tax, which reduces the employee’s taxable income, although unlike HSAs, funds in FSAs are generally required to be used within the plan year or risk being forfeited under the “use it or lose it” rule. FSAs also extend to dependent care, where employees can set aside pre-tax funds to cover eligible childcare expenses, providing a further tax benefit for families.

Commuter Benefits

For residents of the Northern Mariana Islands who commute to work, commuter benefits can be another form of pre-tax deduction, although the applicability depends on employer offerings. Pre-tax commuter benefits allow employees to allocate a portion of their salary, before taxes, towards public transportation and parking expenses. This effectively reduces their taxable income, as these expenses are deducted from gross wages before federal income taxes are applied. For 2024, the IRS limit for commuter benefits is expected to remain at approximately $300 per month for qualified parking and transit expenses.

These pre-tax deductions play a crucial role in reducing the tax liability of residents in the Northern Mariana Islands, allowing them to save for healthcare, retirement, and other essential expenses more effectively. Employers in the territory are encouraged to offer these benefits as part of a comprehensive compensation package to help employees manage their financial planning and tax obligations efficiently.

Tax Type Summary Table

Median Household Income in the Northern Mariana Islands

The median household income in the Northern Mariana Islands is a key indicator of the region’s economic health. As of the latest available data, the median household income was approximately $25,000, reflecting the local economic conditions and the smaller scale of industries and opportunities compared to mainland U.S. states.

Northern Mariana Islands Tax Brackets for 2024

Under the mirror tax system, residents of the Northern Mariana Islands are taxed according to U.S. federal income tax brackets. This progressive system applies different rates depending on income levels, ensuring that individuals with higher earnings contribute a larger share of their income in taxes. For single filers in 2024, the brackets are:

For married couples filing jointly, the tax brackets are:

(Source)  

These brackets ensure that residents are taxed progressively, and higher earners face higher marginal tax rates, contributing more towards overall tax revenues. There is no additional local income tax for individuals, simplifying the tax process, and reducing the burden on residents.

The taxation system in the Northern Mariana Islands is designed to be simple, focusing on federal mirror taxes without the complexity of state or local income taxes for individual earners, thereby creating a straightforward tax landscape for residents.