Retired Military Moving to PR...hopefully!

Hi gbillman,
a lot of that was covered recently in other tax posts. We have some retired military that can speak to you about PX, VA, and other military related subjects, wait a few days, they will come online.

Start with this one: https://www.expat.com/forum/viewtopic.php?id=761763

Did you ever get a response on how your military retirement pension is taxed in Puerto Rico. I plan to retire in PR in a couple of years and was also curious.

Best I can tell is military retirement is taxed as normal income...no good deals.

Since I'm neither a veteran nor even on the island yet, I stayed out of the thread.  As I read your original post however, let me suggest a few responses.

In terms of military retirement benefits exclusive of pension, expect no change from the mainland.  Access to PX and VA are unaffected.  PR is an American territory, so expect no changes whatsoever.  US federal law applies.

As for the income, it too really is unaffected.  The pension is a source of income off-island on which you will pay federal income tax per normal.  Puerto Rico charges income tax on local income only.

As far as Act 22 goes, this applies only to capital gains realized on assets acquired after you move to the island.  This clearly doesn't apply to a military pension.  It seems that PR is trying to attract folks like my father-in-law, a retired exec from Intel who enjoyed day-trading in his retirement.  Alternatively, Act 22 is attractive for some in the real estate game, but only those who "flip" houses as they take capital gains.  Those who buy and hold (landlords) take regular investment income.  On Act 22 (and Act 20) there's a pretty good article here.

I don't share the enthusiasm of the author of the article.  I don't think that PR "hit it out of the park".  Indeed, for most of us contemplating retirement to PR on pension/investment income, neither of these laws will affect us.

EDIT:  It has been a while since I've spent time looking into Act 22.  The Act was amended in 2016, and there are now provisions for including capital gains on assets acquired before the change of residency.  It looks like this would apply to IRAs, though not pensions.  The calculations are really quite confusing.  A good discussion of these changes including examples of how tax on capital gains would be calculated can be found here.  And if that article doesn't convince you of the need to seek competent professional advice on PR taxes, I don't know what will.

Your military retirement will pay federal tax as normal, your 401k, IRA also. Any income from a PR source will pay PR taxes and in some occasions may also pay federal.

Social security will pay Federal tax, not PR taxes.

Does Puerto Rico taxes your VA disability check? I have searched all over & cannot get an answer!

Bonchi wrote:

Does Puerto Rico taxes your VA disability check? I have searched all over & cannot get an answer!

NO, that is US sourced income.

Thank you for answering my question! I know my military retirement will be heavily taxed, but know I know that my VA check & GIBILL money will not be touched (GI BILL falls under US source benefit)