OPTIONAL TAX ON WITHHOLDING AT SOURCE

 

In this issue: We summarize the rulings established by the Treasury Department for those taxpayers, individuals, or corporations, that render professional services and that choose the 6% Optional Tax for the tax withholding of payed fees.  We stress that this is only a summary.  For detailed information and assessment on your particular case, please call us at Torres CPA Group.

 

The 2018 Tax Law states that any self-employed individual or corporation engaged in rendering professional services and whose income are of $100,000 or less, may opt for the Optional Tax withholding of 6%, without deductions, instead of the 10% withholding now established by the new law.  To this effect, the Treasury Department (TD) published Circular Letter No. 19-02 (CC RI 19-02) to inform on the criteria and requisites taxpayers must comply with if they select the Optional Tax.

 

CC RI 19-02 states that for tax year 2019, any taxpayer that chooses the Optional Tax Withholding of 6% must present to its clients, withholding agent, or payer of the service a copy of a sworn statement that presents, among other things, the following information: name, address, Social Security or employer’s account number, a statement which affirms that the total amount of the estimated gross income for the tax year will be equal or less than $100,000; and an assertion that the received payment is subject to a withholding at source.

 

Requisites:

 

Eligibility requisites for the 6% Optional Tax for both individuals and corporations are:

  • Income must substantially result from the rendering of professional services;
  • The total amount of the income paid during the tax year for such services must be reported on an informative declaration;
  • The total amount of income received must be subject to the income tax withholding at source or to the estimated tax paid.

 

The TD clarifies that the Secretary may add by means of any general announcement or publication additional requisites to those stated on CC RI 19-02.  The TD or the Secretary may rule the conditions under which an individual or corporation that provides services may opt for the Optional Tax for subsequent years after 2019.  The payer will accept the sworn statement and will keep it as proof of the request for a reduction of the income tax rate of withholdings at source for tax year 2019.

 

Taxpayers Eligible for the Optional Tax who do not opt for it in 2019

 

Taxpayers eligible for the Optional Tax who do not submit the sworn statement for 2019 will be subject to the 10% withholding at source.  However, they may opt for the Optional Tax at the moment they file their income tax return of 2019.

At TCG we have the resources and experience to help you, contact us today.

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