Posted by Raven Skylar Tax & Consulting, LLC

Puerto Rico & US Taxes: Who Should File Taxes in Puerto Rico?

Puerto Rico & US Taxes: Who Should File Taxes in Puerto Rico?

All American citizens, even if you work on Mars, must pay tax to the US government. With this, one would expect that US citizens living and working in Puerto Rico will also have to pay taxes. This article sheds light on essential things to take note of. 

Since birth, Americans who have stayed on this Island do not need to pay taxes, provided their income only comes from Puerto Rico. However, you will pay taxes if you have income from any location in the world or work for an agency of the US government in Puerto Rico. 

With this, provided you meet the following condition, you will not have to file taxes:

  1. You are a legal resident and citizen of Puerto Rico for the whole tax year

  2. Your income only came from Puerto Rico

However, these rules are not the same for employees of the US government and citizens enrolled in the US armed forces. 

All American citizens who switched residency from Puerto Rico to any of the American States, but were a bona fide Puerto Rico citizen for not less than two years can exclude income from Puerto Rico from their tax return (income). This is attributable to the period you were based in Puerto Rico.

All bona fide residents of Puerto Rico who are qualified to exclude Puerto Rico income from their tax return need to estimate the specified threshold needed for filing. You can get help from Publication 1321 or contact a tax professional to know the payment required to file and submit a US tax return. 


Citizens of US in the Military Service 

US citizens that are bona fide citizens of Puerto Rico in the fiscal year and got income as employees of the US government in Puerto Rico need to file a tax return to the FG.

For a bona fide Puerto Rico citizen, alongside a US armed force member, the military service earning will have to be sourced to Puerto Rico, regardless of the fact that you worked for any US possession or military. The home of record is what helps determine the residency of a US armed force member. For home records that read Puerto Rico, you are a Puerto Rico resident even if your place of assignment is the US. With this, you have to file and submit a Puerto Rico tax return for your income from all around the world, alongside a US return for wages from the armed forces. You might qualify for a foreign tax credit for taxes you paid to Puerto Rico. 

For a home of record that is any of the fifty US states, your income is sourced to Puerto Rico even if that is your place of assignment. It is essential to file a Puerto Rico tax return that will report income from Puerto Rico sources, alongside a tax return from the US that will report income from sources worldwide. 

Some rules apply to spouses or partners of active US military members from the Military Spouse Residency Relief Act (MSRRA). Spouses of civilians might qualify to choose similar tax residence like the spouse of active duty officers:

  • Provided such a civilian spouse is always a Puerto Rico bona fide citizen, judging by the MSRRA, in any US states or District of Columbia, all tips, wages, and salary that civilian spouse earned are classified as sourced from Puerto Rico. This civilian spouse will report and file such taxes with the bona fide resident status.

  • As long as such civilian spouse never stops being a resident in any of the states in America or District of Columbia and the income of such civilian spouse is mainly from tips, salaries and wages, the spouse can be subjected to taxes from income around the world and will need to file a US tax return alongside a state tax return. If other income is realized from Puerto Rico, such income will have to be reported to the Puerto Rico community. 

With these tax benefits targeted at military spouses from MSRRA, there could be lots in tax savings, making the process of filing a return less complicated. 


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