The Puerto Rico Treasury Department recently issued Internal Revenue Circular Letter 21-20, which establishes procedures for a former resident of Puerto Rico to demonstrate that distributions received from a U.S. retirement plan qualified under the Code and whose trust was created in a U.S. state are not subject to tax under the Puerto Rico Internal Revenue Code of 2011, as amended (the “Puerto Rico Code”). In order to establish that distributions received from a U.S. retirement plan are not taxable under the Puerto Rico Code, an individual is required to submit IRS Form 8898 (Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession) to the employer who maintains the plan from which the distributions are made. If the individual does not submit a Form 8898, such individual must instead submit the following information to such employer to demonstrate the individual’s change of residence: An affidavit… Continue Reading
Puerto Rico to Allow Rollovers from the Government Plan for Puerto Rico Employees to Qualified Retirement Plans
On January 20, 2021, the Puerto Rico Department of Treasury released Administrative Determination No. 21-01 (?Ç£AD 21-01?Ç¥), allowing for direct and indirect rollovers of lump-sum distributions from the defined contribution government plan for Puerto Rico employees to a plan that is qualified under Section 1081.01(a) of the Puerto Rico Internal Revenue Code of 2011, as amended (the ?Ç£Code?Ç¥), maintained by a private-sector employer. Such rollovers would be considered exempt transactions and would not be subject to income tax withholding under Section 1081.01(b) of the Code. The provisions of AD 21-01 are effective immediately. AD 21-01 is available here.
The Puerto Rico Treasury Department (?Ç£Puerto Rico Treasury?Ç¥) recently issued Internal Revenue Circular Letter (?Ç£CC RI?Ç¥) 20-29 extending the period to make ?Ç£Special Disaster Distributions?Ç¥ from qualified retirement plans and IRAs from June 30, 2020 to December 31, 2020. See our prior blog post here for details regarding what distributions qualify as Special Disaster Distributions. Other provisions of previously issued CC RI 20-09 (which provides rules applicable to distributions), CC RI 20-23 (which amends CC RI 20-09 to add additional eligible expenses), and CC RI 20-24 (which removes the requirement of signing before a notary public) continue in force. A copy of CC RI 20-29 can be found here.
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… Continue Reading
The Puerto Rico Department of the Treasury recently issued Circular Letter Internal Revenue No. 18-21 (the ?Ç£Circular?Ç¥), which announced applicable qualified retirement plan limits for 2019, as required by the Puerto Rico Internal Revenue Code of 2011, as amended (the ?Ç£PR Code?Ç¥). For plans qualified only in Puerto Rico, the limits on elective deferrals, catch-up contributions, and after-tax contributions all remain unchanged for 2019, while the limits on annual benefits, annual contributions, plan compensation, and the highly compensated employee threshold all increased for 2019. For plans qualified in both Puerto Rico and the U.S. (including the Federal Government Thrift Plan), the limits on catch-up and after-tax contributions remain unchanged for 2019, while the limits on elective deferrals, annual benefits, annual contributions, plan compensation, and the highly-compensated employee threshold, all increased for 2019. The applicable plan limits are as follows: Annual Benefit Limit (All Defined Benefit Plans): $225,000 (increased from $220,000)… Continue Reading
A new legislative act in Puerto Rico, Act No. 9-2017 (the ?Ç£Act?Ç¥) amends the Puerto Rico tax code and the Trust Act of 2012, affecting qualified retirement plans and impacting highly compensated employees (?Ç£HCEs?Ç¥). Among several changes, the Act fixes a new dollar threshold for HCEs at $150,000 (previously $120,000 (which is the same as in the U.S.)). The new HCE dollar threshold is fixed and now classifies corporate officers based on that threshold as well (the Act no longer requires employers to treat corporate officers as HCEs regardless of their pay). The Act also modifies the limits on per-participant contributions to defined contribution plans. The Act will limit contributions to the lesser of 25 percent?áof ?Ç£net income?Ç¥ (which is currently undefined) and $75,000. This change modifies the per-participant contribution limit which is currently the same under both the Puerto Rico and U.S. tax codes (i.e., the lesser of 100… Continue Reading
The Puerto Rico Department of the Treasury recently issued Tax Policy Circular Letter No. 16-07 (the “Circular“), which announced applicable qualified retirement plan limits for 2017, as required by the Puerto Rico Internal Revenue Code of 2011 (the “PR Code“). For plans qualified in Puerto Rico and for those plans dual qualified in the United States and Puerto Rico, only the limits on annual benefits, annual contributions, and plan compensation have changed for 2017. The applicable plan limits are as follows: Annual Benefit Limit (All Defined Benefit Plans): $215,000 (increased from $210,000 for 2016). Annual Contribution Limit (All Defined Contribution Plans): $54,000 (increased from $53,000 for 2016). Annual Compensation Limit (All Plans): $270,000 (increased from $265,000 for 2016). Compensation Limit for a Highly Compensated Employee: $120,000 (unchanged). Elective Deferrals Limit (Dual Qualified Plans or Federal Government Thrift Plans): $18,000 (unchanged). Elective Deferrals Limit (Puerto Rico-Only Plans): $15,000 (unchanged). Catch-up Contribution… Continue Reading
The Puerto Rico Treasury Department recently issued Administrative Determination No. 16-05 (the ?Ç£Determination?Ç¥), which provides a revised procedure for trusts forming part of Puerto Rico qualified requirement plans (?Ç£Benefits Trusts?Ç¥) to meet their annual filing requirements under Section 1061.10(a) of the Puerto Rico Internal Revenue Code of 2011, as amended (?Ç£Trust Filing?Ç¥). The new Trust Filing procedure applies with respect to taxable years beginning after December 31, 2014. Prior to the Determination, Benefits Trusts were required to file Form 480.7(OE) (or, if the trust was subject to Title I of ERISA, a copy of the IRS Form 5500) with the Puerto Rico Treasury Department by the last day of the seventh month following the end of the plan year (subject to an automatic 2?? month extension). Under the Determination, Benefits Trusts established or adopted by an employer that must file a Puerto Rico income tax return will comply with its… Continue Reading
Sponsors of Puerto Rico Qualified Plans May Need to File by April 15, 2015 to Secure Tax Qualified Status
Under Puerto Rico Internal Revenue Circular Letter 11-10, any restatement of a Puerto Rico qualified Plan or certain ?Ç£qualification amendments?Ç¥ must be filed with the Puerto Rico Treasury Department on or before the due date of the employer?ÇÖs income tax return for the taxable year during which the restatement or qualification amendment became effective. Thus, for a calendar year plan sponsor that restated a Puerto Rico qualified plan or made any qualification amendment effective in 2014 (including amendments required by the U.S. Supreme Court?ÇÖs decision in U.S. v. Windsor regarding same-sex spouses), such restatement or amendment must be filed with the Puerto Rico Treasury Department on or before April 15, 2015 (or any extended due date to file the employer?ÇÖs income tax return for 2014).
In Administrative Determination No. 14-16, Hacienda clarified certain ambiguities in the recently enacted Tax System Adjustment Act, which amended the Puerto Rico Internal Revenue Code of 2011 (the ?Ç£PR Code?Ç¥) to provide a window, from July 1, 2014 to October 31, 2014, for the prepayment of Puerto Rico income taxes on all or part of a participant?ÇÖs retirement plan account balance or accrued benefits. During the window, the tax rate on prepayments is reduced to 8 percent for plans qualified under the PR Code and to 15 percent for non-qualified plans. Prepayments may be made with the participant?ÇÖs own funds or with funds distributed from the plan. Although a plan is not required to permit distributions for tax prepayments, a plan amendment may be needed if the plan chooses to permit such distributions. Such an amendment is not a qualifying amendment and need not be filed with Hacienda. Administrative Determination… Continue Reading