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Will I pay PR tax on my NJ pension in addition to the federal payment?

Hello all,

I am new to the forum and am planning a full move to the southwest side of the island by 2020.  Though I was born in NJ and lived here my entire life, I have family and many connections to that part of the island.  I've traveled there frequently throughout my life.  I'm researching to realize whether I would end up paying 24% federal (that's my bracket) and in addition be required to pay 30% PR tax?  I'm studying up on Act 22 but I believe that this would only affect income that I may produce as a result of opening a business on the island.  I am also wondering if my 403b would end up with the same ramifications mentioned above.  All experienced responses would be greatly appreciated.

Gracias.

Nope just Federal.
You only pay PR tax on money you make in the island as from a job, a business or PR rental property. Your Social Security when you get it only pays Federal also.

Check with a PR accountant to be on the safe side.

No, you will not pay Puerto Rico tax from a pension earned in New Jersey. For Act 20/22 you should get advice from an expert. There are folks in my neighborhood who do this. As you wish, I can pass along the name of a consultant.

Your 403b pays only Federal if you are a resident of PR. If you have facebook you may want to join the group about act 20/22. https://www.facebook.com/groups/PuertoRicoJobsBoard/ they can answer many questions about both of those acts and also put you in contact with people that does the paperwork.

Hey Rey... great job with this forum.  Thanks for the response.  I spoke to an accountant and an attorney and was informed that I would pay the 30% PR tax and receive credit for the 24% federal tax.  I will continue to search for the correct information.

Thanks for the response. I would appreciate the name of the consultant. Thank you.

theclavekid79 :

Hey Rey... great job with this forum.  Thanks for the response.  I spoke to an accountant and an attorney and was informed that I would pay the 30% PR tax and receive credit for the 24% federal tax.  I will continue to search for the correct information.

Act 20/22 is a different animal. I was freeing to income from work, 401k, pensions, social security and other income from the US. I am not aware of a single expat paying PR tax under those conditions.

Income generated in the island yes is taxed in PR.

Act 20 and 22 deal with what you generate while a resident in the island, so its effect is after you move in for your business or investments. Any pre-tax money like IRA or 401k for example does not fall under act 22, as dividends and growth is not taxable until you take the money out. If you want to have it fall under 22, it it my understanding you need to convert to a Roth IRA which may not be worth it.

theclavekid79 :

Hey Rey... great job with this forum.  Thanks for the response.  I spoke to an accountant and an attorney and was informed that I would pay the 30% PR tax and receive credit for the 24% federal tax.  I will continue to search for the correct information.

Interested in the answer myself, I did some non-expert research and believe this advice is correct.  You will be taxed on the U.S. sourced pension in the U.S. and in PR, subject to credit in PR for the U.S. tax paid.

According to the accounting firm KPMG:

The general rule is that a person who is a resident of Puerto Rico is taxed on the individual’s worldwide income. Non-residents are generally taxed on income derived directly or indirectly from sources within Puerto Rico. Although Puerto Rican nationals are US citizens, bona fide residents of Puerto Rico are exempt from US federal income tax on income derived from sources within Puerto Rico.
. . . .
Income taxes paid or accrued to the US and its possessions or to foreign countries during the taxable year may be credited against the Puerto Rican income tax in order to avoid double taxation. As a general rule, only residents are in a position to claim the foreign tax credit against their Puerto Rican tax because, in principle, only they are subject to Puerto Rico taxes on their worldwide gross income. The foreign tax credit is subject to two limitations, a per-country limitation and an overall limitation.


I found another source (tax preparer H&R Block) saying the same thing:

If you are a bona fide resident of Puerto Rico during the entire tax year, you’ll file the following returns:

   1.   A Puerto Rico tax return (Form 482) reporting your worldwide income.
    2.  A U.S. tax return (Form 1040) reporting your worldwide income. However, this 1040 will exclude your Puerto Rico income.

If you report U.S. income on your Puerto Rico tax return, you can claim a credit against your Puerto Rico tax, up to the amount allowable, for income taxes paid to the U.S.

Hello Sawman.  Thanks for your reply....So in the overarching situation.... I will end up paying out 30% of my total USA income toward taxes... correct?

theclavekid79 :

Hello Sawman.  Thanks for your reply....So in the overarching situation.... I will end up paying out 30% of my total USA income toward taxes... correct?

It seems that way, more or less.  I wish NomadLawyer would chime in - he's a former PR resident, now EU resident/lawyer.  I was really interested in knowing what these caps are:

As a general rule, only residents are in a position to claim the foreign tax credit against their Puerto Rican tax because, in principle, only they are subject to Puerto Rico taxes on their worldwide gross income. The foreign tax credit is subject to two limitations, a per-country limitation and an overall limitation.

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