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

We receive Soc. Sec. and we earn a little bit through a couple of MLMs, which we hope will soon increase.  My husband will also be giving PGA junior golf camps for which he will be paid by a US company. 

If we become PR residents, am I correct that we would only be responsible to the IRS for reporting and any taxes that are due if those are the only eanrings?

If he earns a little for a few individual golf lessons given in PR (we don't know yet if this will transpire), He will have to report to PR tax board, correct?

If we remain US residents, will that basically be the same scenario?

Can we retain our US bank account if we become PR residents and open a PR account as well?

Thanks!

I am not a tax man, but here is my understanding: If you remain US resident, then you have federal, state, and also PR taxes, PR will give you credit for any Federal taxes payed on Federal sourced income, but anything he makes locally is 100% taxable by PR.

Yes you can keep your US based bank, many do, but you are also going to need one from PR. Not everyone is going to accept a mainland check, and if they do, they will not credit it until it clears which can take a couple of weeks.

Thanks, Reinaldo.  If we become PR residents, how does that change things, do you know?

Susiegood :

Thanks, Reinaldo.  If we become PR residents, how does that change things, do you know?

I am not a profesional, but this is my understanding.
Assumptions: You money comes from Social Security, other types of US retirements, 401k, 403B, IRA (standard one).

Federal: You will file and pay Federal as normal and do so first
.
State: You will file for the state you were living at prior to coming to PR, assuming you lived there part of the year, the dates you move out is very important since after moving you no longer pay the tax on money you received after the move to PR. This will go away completely once you live in PR a full year starting Jan 1.

Property tax in the states: If you have a property in the states you will still be paying property tax until you sell it. Since you are no longer a resident of the state, your property taxes could change upward or not, each state is different. Also having property may cause you to also have to pay some state tax, you need check on that because you have a tie to the stay. Check with a tax person. Also having property in the states may make it more difficult to be granted act 20/22 as it is a tie to the states.

PR taxes: You will need to file in PR, but you will be given credit for Federal taxes payed, so likely you will pay zero to PR. This and you state taxes are why you must do the federal first.

PR income: If you have some business or make money from some source in PR, you will pay PR taxes on the money you made from PR sources, you will not pay federal on this money. That sounds good until you realize that the maximum tax in PR is 33% and it starts on income above 60k, where in the states the max tax is is a little higher but requires you to make a heck of a lot more money to reach the max tax. So income from PR means much higher taxes on that income.

ACT 20/22 are a complete different animal and you basically need be rich to participate and basically you will be paying only 4% PR taxes on the activities covered by this plan and zero Federal on that money.

You need to speak with a tax expert, this info is generic and I could have been informed wrong.
I just got here a couple of months ago.
Hope this gives you an idea.
Rey

PS. The PR government takes up to a year to send you a refund if any, so be prepared to wait and wait.

PPS: You will no longer be able to vote in state or Federal Elections, to do so is Fraud and may land you in Fed Jail. You will be able to vote in PR elections if that interests you. No US Citizens, Puerto Rican or not can vote in state or federal elections, we are not a state.

PPPS: If you get SSI, you will loose it shortly after getting to PR, SSI is not payed to residents of PR. There are some court cases going on but not yet resolved, so no SSI.

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