Puerto Rico Individual Income Insights

Individual Tax
Residents of Puerto Rico are subject to federal income tax on their worldwide income. However, U.S. Code Section 933 permits a bona fide individual resident of Puerto Rico to exclude the Puerto Rico source of income from his gross income for U.S. tax purposes. The bona fide residence in Puerto Rico for income tax purposes is established through the three tests included in U.S. Code Section 937: (a) the presence test, (b) the tax home test, and (c) the closer connection test. Bona fide residents of Puerto Rico will be subject to U.S. income tax on income from sources outside Puerto Rico.

Individual residents of Puerto Rico whose gross income for the taxable year, net of exemptions, exceeds $5,000; or non-residents of Puerto Rico and citizens of the United States, whose gross income from Puerto Rico sources for the taxable year, net of exemptions, exceeds $5,000, must file a Puerto Rico income tax return.

Self-employed persons in Puerto Rico are required to pay federal FICA taxes. If you have income that is effectively connected with doing business in Puerto Rico, you must file a 1040PR with the IRS to report your self-employment income and, if necessary, pay self-employment tax.

Self-employed individuals must pay an estimated tax if they expect to owe at least $1,000 of Puerto Rico income tax or Federal tax, during the taxable year, after subtracting their withholdings and refundable credits.


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