Bona fide residents of the Commonwealth of Puerto Rico – Tax credits

Puerto Rico

Puerto Rico has its own separate and independent income tax system. Although it is modeled after the U.S. income tax system, there are differences in law and tax rates. Requests for information about the filing of Puerto Rico tax returns or for advice about matters connected with Puerto Rican taxation should be addressed to:

Departamento de Hacienda
Negociado de Asistencia Contributiva
P.O. Box 9024140
San Juan, Puerto Rico 00902-4140

• The phone numbers are 787-622-0123 and 787-620-2323
• Website: Departamento de Hacienda (in Spanish)

Earned Income Credit (EIC)

A bona fide resident of Puerto Rico generally cannot claim EIC on a U.S. income tax return (Form 1040). You may contact the Departamento de Hacienda to determine if they offer similar credits and your eligibility.

Additional Child Tax Credit (ACTC)

If you are subject to federal income tax and have a U.S. income tax filing requirement, you must file Form 1040 and Schedule 8812 to claim ACTC. Form 1040 and Schedule 8812 are available in English or Spanish.

If you are not required to file a U.S. income tax return, this credit is available only if you meet all of the following conditions.

• You were a bona fide resident of Puerto Rico during the entire tax year.
• Social security and Medicare taxes were withheld from your wages, or you paid self-employment tax.
• You had one or more qualifying children. (For the definition of a qualifying child, see the Instructions for Form 1040 (PR) or Form 1040-SS).
• Neither you nor your spouse, if filing a joint tax return, can be claimed as a dependent on someone else’s U.S. income tax return.

Individuals meeting these conditions can claim the ACTC on Form 1040 (PR) or Form 1040-SS.

Under ARP, the American Rescue Plan Act, the child tax credit was enhanced for 2021. For additional information about claiming the child tax credit for tax year 2021, please refer to the instructions for Form 1040-SS or Form 1040 (PR).

Credit for other dependents (ODC)

If you are subject to federal income tax and have a U.S. income tax filing requirement, you must file Form 1040 and Schedule 8812 to claim ODC for any qualifying dependents who can’t be claimed for ACTC. Form 1040 and Schedule 8812 are available in English or Spanish.

If you are a bona fide resident of Puerto Rico with one or more qualifying children and have income above certain levels but you are not required to file a U.S. income tax return, calculate the credit for other dependents using the Additional Child Tax Credit Worksheet in the Instructions for Form 1040 (PR) or Form 1040-SS to maximize your ACTC amount. See the Instructions for these forms for more information.

American Opportunity Tax Credit (AOTC)

A bona fide resident of Puerto Rico generally cannot claim AOTC on a U.S. income tax return (Form 1040), even if they have a U.S. income tax filing requirement. You may contact the Departamento de Hacienda to determine if they offer education credits and your eligibility.

Foreign Tax Credit (FTC)

Credits for income taxes paid to foreign countries, by a Puerto Rico resident required to report the corresponding income to the IRS on a U.S. tax return, can be claimed using Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), subject to the rules and instructions applicable to Foreign Tax Credits.

You cannot claim FTC for taxes paid on territory income that is excluded on your U.S. tax return. The FTC generally is figured on Form 1116. For a detailed explanation, see Publication 570, Tax Guide for Individuals With Income from U.S. Possessions.

Note: a taxpayer cannot file Form 1040-SS or Form 1040 (PR) and Form 1040 for the same tax year.

U.S. government employees

Wages and cost-of-living allowances paid by the U.S. government (or one of its agencies) for working in Puerto Rico are subject to Puerto Rico tax. These wages are also subject to U.S. tax, but the cost-of-living allowances are excludable. The cost-of-living allowances are excluded from Puerto Rico gross income up to the amount exempt from U.S. tax. In order to claim the exclusion, you must:

• Include with your Puerto Rico tax return evidence to show the amount received during the year, and
• Be in full compliance with your Puerto Rico tax responsibilities.

A foreign tax credit is available in order to avoid double taxation.