Taxes in puerto rico retirement income

Is anyone a puerto rican resident retired from the us mainland? How is retirement income taxed if you have your roth, 401k, ira, social security income derived from accounts still on the mainland? I followed a few threads but didnt really see a definitive answer from someone in this situation

Thanks

I cannot speak for every type of investment that you have. I can tell you that I retired in New York State and started  receiving Social Security before I moved full-time to Puerto Rico.  I pay federal income tax. I do not pay Puerto Rico income tax.  My accountant in New York also was familiar with Puerto Rico laws.  I consulted with him.

Thanks. So currently you only use social security and dont draw from a retirement account.

Frog: I seem to recall reading somewhere that you can file to get a PR citizen status and not have to pay Federal tax from your SS. You might have to pay PR tax, but the rate is much lower.

To my knowledge you would pay Federal on Social Security payments, and any money you draw from Regular IRA, 401k, 403B, US work related retirement. None of these are subject to PR taxes.

You will pay state tax on all the above up to the date you leave the US state.

You will get full benefit starting the first Jan 1 thru Dec 31 year that you are a PR recident.

Social security payment will be taxed at the 50% since you have no wages as your only other income is from the Regular IRA, 401k, 403B, US work related retirement which are not subject for consideration on the Social Security payment.

Check with a PR tax consultant.

Interesting.  Thank you. This would help, because I get the Social Security maximum. I will check into this. I am now a Puerto Rican citizen.

Frog: let us know what you find out about social security when one becomes a resident as you are. Lots of good info here. Thanks all I will update after talking to a PR tax person.

I did a little research, and it appears any income you make in PR is not Federally taxed, if you are a PR resident, but any income you make stateside, including SS and government income (e.g. military) is.

Drew64 :

Is anyone a puerto rican resident retired from the us mainland? How is retirement income taxed if you have your roth, 401k, ira, social security income derived from accounts still on the mainland? I followed a few threads but didnt really see a definitive answer from someone in this situation

There are two questions:  Does a PR resident receiving social security have to file a U.S. income tax return and if a return is filed how is it taxed?  The answer to each is "it depends."

WHO MUST FILE

In general, section 933 of the U.S. Internal Revenue Code requires that U.S. citizens who are  residents of Puerto Rico during the entire taxable year, but who receive income from sources outside Puerto  Rico, must  file a U.S. Federal income tax return.  (This determines if you have to file a return - you may have little tax liability depending on your deductions, etc.) 

The income you receive from Puerto Rican sources is not subject to  U.S. income tax.  If you have both Puerto Rican income and income from sources subject to U.S. reporting rules, a calculation has to be done to allocate a part of the  itemized deductions or a part of the standard deduction.  In short, if you have very little U.S. source income, your allocated standard deduction might still be enough to avoid having to file.  Again, just because you are required to file a return does not necessarily mean you will have to pay any taxes.

The source of income is important in determining if the income is included in section 933 of the Internal Revenue Code and must be reported on a U.S. Federal income tax return.  The source of social security is the United States.

IRS Examples Of Source Of Income Rules:

Salaries and other compensation.  .  .  .  .  .  .  .  .  .  .  .  .  .  .    Where the service is performed
Social Security Benefits.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .   *U.S. Source income by definition (IRC Sec. 861)

Pensions:
Contributions.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .   Where services were performed that earned the pension
Investment earnings.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .    Where pension trust is located

Interest  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .    Residence of the payer (e.g., where the bank is)
Dividends.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .    Location of payer (e.g., where the corp. is)
Rents.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .    Location of property

Sale of real property.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .    Location of property

In summary, most people receiving social security will have to file a U.S. income tax return.  There may be an instance where the benefits received are so small (and no other U.S. source income exists) that a return may not be required, but this seems very unlikely.

HOW MUCH TAX WILL I OWE:

Again, tax calculation depends on overall U.S. income, deductions, etc. and even with some portion of social security excluded (generally one-half), the results are probably dependent on too many variables not to have a U.S. tax professional handle.  Here is an example from the IRS but realize that this is for 2017.  With the recent huge increase in married filing jointly exemption to $24,000 under the tax reform act, retirees are likely to owe less tax than before.

Example.
You and your spouse (both over 65) are filing a joint return for 2017 and you both received social security benefits during the year. In January 2018, you received a Form SSA-1099 showing net benefits of $7,500 in box 5. Your spouse received a Form SSA-1099 showing net benefits of $3,500 in box 5. You also received a taxable pension of $25,800 and interest income of $500. You did not have any tax-exempt interest income. Your benefits are not taxable for 2017 because your income, as figured in Worksheet A, is not more than your base amount ($32,000) for married filing jointly. Even though none of your benefits are taxable, you must file a return for 2017 because your taxable gross income ($26,300) exceeds the minimum filing requirement amount for your filing status.

frogrock :

Interesting.  Thank you. This would help, because I get the Social Security maximum. I will check into this. I am now a Puerto Rican citizen.

I'm betting you're 100% correct in filing in the U.S. because social security is U.S. source income.  The fact that it appears you have other income from the U.S. would also require a U.S. return.

ReyP :

To my knowledge you would pay Federal on Social Security payments, and any money you draw from Regular IRA, 401k, 403B, US work related retirement. None of these are subject to PR taxes.

You will pay state tax on all the above up to the date you leave the US state.

You will get full benefit starting the first Jan 1 thru Dec 31 year that you are a PR recident.

Social security payment will be taxed at the 50% since you have no wages as your only other income is from the Regular IRA, 401k, 403B, US work related retirement which are not subject for consideration on the Social Security payment.

Check with a PR tax consultant.

Agreed, but since this is a U.S. tax filing and U.S. source income not subject to PR taxes or filings, I'd might go with the professional from back home in the states to handle.  There's nothing about PR residency that affects the filing or tax calculation - other than excluding PR sources of income, e.g., wages from a PR employer for work performed in PR.

Then again, PR requires residents to report their worldwide income, which means U.S. social security, pensions, etc. for U.S. sources need to be reported as well to PR.  But, subject to limitations, the taxes paid on non-PR income (i.e., what you have to pay on your U.S. income tax return) are credits applied to your PR reported income.  So, I think a good professional is required in both areas!

SawMan :
ReyP :

To my knowledge you would pay Federal on Social Security payments, and any money you draw from Regular IRA, 401k, 403B, US work related retirement. None of these are subject to PR taxes.

You will pay state tax on all the above up to the date you leave the US state.

You will get full benefit starting the first Jan 1 thru Dec 31 year that you are a PR recident.

Social security payment will be taxed at the 50% since you have no wages as your only other income is from the Regular IRA, 401k, 403B, US work related retirement which are not subject for consideration on the Social Security payment.

Check with a PR tax consultant.

Agreed, but since this is a U.S. tax filing and U.S. source income not subject to PR taxes or filings, I'd might go with the professional from back home in the states to handle.  There's nothing about PR residency that affects the filing or tax calculation - other than excluding PR sources of income, e.g., wages from a PR employer for work performed in PR.

Then again, PR requires residents to report their worldwide income, which means U.S. social security, pensions, etc. for U.S. sources need to be reported as well to PR.  But, subject to limitations, the taxes paid on non-PR income (i.e., what you have to pay on your U.S. income tax return) are credits applied to your PR reported income.  So, I think a good professional is required in both areas!

I sugested a PR tax pro, because I have heard that you are still supposed to fill the PR forms even if you had no PR income. Now I don't know if this is true since I only heard it from a single person. Most of the retired expats I have spoken to, only do the filling of the Federal taxes, never the PR taxes. Given I was unsure I was being cautious.

I actually got a phone call from a Puerto Rican accountant agency. Social Security, IRA, and all other mainland retirement income is US sourced. So you file for federal tax and also supposed to file a PR tax form which you apply a credit to based on any Fed taxes paid. This way you are not dual taxed.

Drew64 :

I actually got a phone call from a Puerto Rican accountant agency. Social Security, IRA, and all other mainland retirement income is US sourced. So you file for federal tax and also supposed to file a PR tax form which you apply a credit to based on any Fed taxes paid. This way you are not dual taxed.

Yup that is my understanding

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