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Tax Implications for U.S Employment in Puerto Rico

Tax Implications for U.S Employment in Puerto Rico

The Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA) imposed taxes on employers in Puerto Rico. If you’re an employer, then you’ll have to file certain employment tax returns and will need an employer identification number (EIN). You can obtain an EIN either by applying online or use Form SS-4PR.pdf to apply by fax or mail. Make sure you only use one method for each entity so you don’t receive more than one EIN.

How do Social Security and Medicare works?

FICA taxes, used to finance the social security and Medicare systems, has two components: the social security tax and the Medicare tax. As an employer, you must withhold the employee portion of FICA taxes from your employees' wages and put in your portion of FICA tax. 

What is the Additional Medicare tax?

For people whose Medicare wages is greater than a threshold amount based on the person’s filing status, additional Medicare will be applied. Without considering the filing status, the employer must withhold the 0.9% Additional Medicare Tax on an employee’s wages paid in excess of $200,000 in a calendar year. You as an employer will have to withhold Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and until the end of the calendar year. must keep on withholding it each pay period. Additional Medicare tax does not have an employer match.

What forms should you file?

Here are the following forms employers in Puerto Rico must use to report the social security and Medical taxes:

Form 941-PR - This form is used for employers engaged in agriculture and whose employees are bona fide residents of Puerto Rico. The form shall report all wages paid, tips your employees reported to you, other compensation, and social security and Medicare taxes. If you expect to owe over $1000 total employment taxes for the tax year, you are required to file this form unless the IRS lets you know that you need to file Form 944. Form 941-PR is due the last day of the month following the end of the quarter and must be filed quarterly.

Form 944 - For those who aren't an agricultural employer, you may qualify to file an annual Form 944. It is filed annually, due by January 31 after the end of the calendar year, and can be filed by employers with an estimated employment tax liability of $1,000 or less for the entire calendar year. For more information about this form, please check IRS.gov.

Tax Deposits - Before employers file Form 941-PR, most of them are required to deposit their FICA taxes. You may also pay your FICA taxes with your return if your filing Form 944. 

Household Employees - You may be requested to withhold and pay FICA taxes on all wages you pay for your employee if you are paying a household employee cash wages. See Publication 926.pdf, Household Employer's Tax Guide to find out whether you’re required to withhold and pay these taxes. You may file Anexo H-PR (Formulario 1040-PR) to report and pay social security and Medicare taxes corresponding to the employer and the employee for all household employees.

An individual who works in or around your residence as housekeepers, maids, babysitters, gardeners is considered your employee. Don’t mistake repairmen, plumbers, contractors, and other business people who are self-employed and has their own equipment to perform and control the work, as your employee because they are not.

Agricultural Employees - You are required to report the employer's and the employee's share of the FICA taxes for agricultural employees if you’re an agricultural employer in Puerto Rico. You will use Form 943PR to file and report. Find out if you're required to withhold and pay FICA taxes on your agricultural employees by studying Publication 51, (Circular A), Agricultural Employer's Tax Guide. You have to file Form 943-PR annually and must do it before the due date January 31 of the calendar year.

How to file Federal Unemployment Taxes?

You might be required to file a Federal Unemployment (FUTA) Tax Return if you’re an employer in Puerto Rico. Refer to Publication 51 to determine if you’re required to pay FUTA taxes and is an agricultural employer. If you’re a household employer, check Publication 926. All other employers should study  Publication 15 or Publication 179 to learn what the policies are for them. 

If you’re a household employee, your employee will be subject to FUTA and has to file Form 940-PR to report and pay FUTA. Filing the form is annually and is due by January 31 after the end of the calendar year. Employer’s in Puerto Rico are usually required to deposit FUTA taxes. It has a tax rate of 6.0% and those taxes aren’t withheld from the employee’s wages.

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