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COVID-19 Puerto Rico Tax Exemptions for Employer Payments and Changes to Puerto Rico Qualified Plans

The Puerto Rico Treasury Department (?Ç£Puerto Rico Treasury?Ç¥) issued Internal Revenue Circular Letter (?Ç£CC RI?Ç¥) 20-22 to offer tax exemptions for certain employer-provided payments for COVID-19. Specifically:

  • CC RI 20-22 extends the provisions of CC RI 20-08, which provides income tax exemptions for ?Ç£Qualified Payments Made for Disaster Assistance?Ç¥ (?Ç£Qualified Payments?Ç¥) made by employers to employees and independent contractors, to include certain payments made as a result of the COVID-19 emergency.
    • Qualified Payments must: (i) be made be during the period from February 1, 2020 to April 30, 2020; (ii) be in addition to the compensation that the employee or contractor ordinarily receives; (iii) not discriminate in favor of highly compensated employees; (iv) not be attributable to or related to the position or salary of the employee or independent contractor; and (v) be limited to maximum payments of $2,000 per month and $4,000 in total (including both Qualified Payments made as a result of the January 2020 earthquake in Puerto Rico and the COVID-19 emergency).
    • Qualified Payments now include: (i) payments made to an employee or independent contractor as a consequence of the state of emergency declared in Puerto Rico as a result of the impact of COVID-19; and (ii) payments made by a private sector employer to assist its nonexempt employees, who have not worked during the COVID-19 lockdown period.
  • CC RI 20-22 also extends the provisions of CC RI 20-08 to allow employers to offer their employees and independent contractors interest-free loans, that are not considered taxable income, to cover expenses related to the COVID-19 emergency.
    • The loan(s) must: (i) be provided during the period from February 1, 2020 to April 30, 2020; (ii) have a loan repayment term that is no longer than 24 months; and (iii) not exceed $20,000 (including both interest-free loans made as a result of the January 2020 earthquake in Puerto Rico and the COVID-19 emergency).

The Puerto Rico Treasury issued CC RI 20-23 to offer relief to qualified plans in Puerto Rico that was offered to U.S. plans by the CARES Act. Specifically:

  • CC RI 20-23 amends CC RI 20-09, which provides rules applicable to ?Ç£Special Disaster Distributions?Ç¥ (?Ç£Distributions?Ç¥) from qualified retirement plans and IRAs.
    • The provisions of CC RI 20-09 continue in force, except that eligible expenses now include any expenses incurred to correct losses or damages suffered, and extraordinary and unforeseen expenses to cover basic needs, as a consequence of the emergency declared by COVID-19, including the loss of income due to the curfew declared by the Governor.
    • Distributions must be made between February 20, 2020 and June 30, 2020 to Puerto Rico residents (who are residents throughout 2020), who are participants in the plan.
    • Distributions receive the following tax treatment: (i) the first $10,000 is excludable from gross income and exempt from tax withholding; (ii) Distributions over $10,000 and up to $100,000 are subject to a 10% withholding and income tax rate; and (iii) total Distributions cannot exceed $100,000 (including both Distributions made as a result of the January 2020 earthquake in Puerto Rico and the COVID-19 emergency).

CC RI 20-22 can be found here and CC RI 20-23 can be found here.

The lawyers of our Employee Benefits and Executive Compensation Practice Group are readily able to assist companies on a nationwide basis with implementing sophisticated benefit plans and providing answers to their most challenging compensation issues. Additionally, our lawyers are well aware of the daily employee benefits challenges facing companies of all sizes and are capable of helping in-house lawyers and human resources personnel with the day-to-day advice and guidance necessary to properly administer employee benefits plans.

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