Posted by Abundant Wealth Planning LLC

US Employment in Puerto Rico: Tax Implications You Should Know

US Employment in Puerto Rico: Tax Implications You Should Know

The federal insurance Contribution Act (FICA), alongside FUTA (the Federal Unemployment Tax Act), made it compulsory for employers in Puerto Rico to pay taxes. As a result, employers have to file some employment tax returns, and they will need an EIN (employer Identification Tax Return). One can apply for EIN by mail, online, or through fax.

Medicare and Social Security 

FICA taxes are designed to take care of Medicare and Social Security systems. As a result, they comprise Medicare and Social Security taxes. An employer needs to withhold the employer portion of such FICA taxes away from their worker's pay. 

Additional Medicare Taxes

There will be an additional Medicare tax for folks who have their Medicare wages above a certain amount judging by the filing status. No matter the filing status, the employer needs to withhold an additional Medicare tax of 0.9% for a worker's wage paid above $200,000 for a calendar year.

It is the employer's responsibility to withhold Additional Medicare Tax, for which the wages in excess of $200,000 were paid to such employer at the end of the calendar year. There is no employer match for the Additional Medicare tax.

Essential Forms to File

These are primary forms employers working in Puerto Rico need to file to report Medical and Social security taxes.

Form 941-PR: all employers in the agricultural sector, who are bona fide Puerto Rico residents, need this form. With this form, one can report all wages paid, alongside the tips from the workers, social security, and Medicare taxes. People that will owe above $1000 for the year need to file such form, except Uncle Sam specifies that the person should file form 944

Form 944: For people not in the agricultural sector, they might be eligible for annual Form 944. This is filed every January with a due date at the end of Jan. Employers with an approximate employment tax liability of $1000 can file it

Tax Deposits: before the filing of Form 941 PR, many employers will need to deposit their FICA taxes. One can also pay the FICA taxes with the return when filing form 944

Household Employees: One might have to hold back and pay FICA taxes on wages paid for the employee when paying employee wages. Also, one might need to file Anexo H-PR to file and pay your Medicare and Social Security taxes, which corresponds to the household workers' employee and employer. 

Anyone that works in and around the vicinity like maids, babysitter, gardeners, housekeepers, etc., is your employer. It should not be confused with self-employed folks like plumbers, contractors with their equipment with which they work. 

Agricultural Employees: One needs to report the employer and worker's part of the FICA taxes for Puerto Rico's agricultural workers. Form 943PR is what taxpayers need to file and report.

Filing the Federal Unemployment Taxes

All employers in Puerto Rico might need to file the Federal Unemployment Tax Return (FUTA). Publication 51 has more information to help one determine if paying FUTA taxes is essential. Household employers should check publication 926 and know the process for filing.

For people employing household workers, there will be FUTA taxes; hence, one needs to File Form 940 PR to report and pay such tax. This tax must be filed annually as it is due by January 31 after the calendar year. Ideally, employers that are in Puerto Rico will need to deposit FUTA taxes. The tax rate is 6% and is not withheld from the worker's wages. 



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