Puerto Rico Tax Table and Income Tax Rates

Puerto Rico operates an independent tax system, distinct from the United States Internal Revenue Service (IRS). This system is governed by the Puerto Rico Internal Revenue Code and applies to individuals who are considered bona fide residents of the island. While Puerto Rico is a U.S. territory and its people are U.S. citizens, its fiscal autonomy means that its residents file income tax returns with the Puerto Rico Department of Treasury (Departamento de Hacienda), not the IRS, for income earned from Puerto Rican sources.

This separate tax jurisdiction has its own set of rules, regulations, and tax rates that differ significantly from federal U.S. tax law. The island’s tax structure encompasses individual income taxes, corporate taxes, sales taxes, and unique economic incentives designed to attract investment.

Determining Your Filing Requirements

An individual must first determine if they are required to file a Puerto Rico income tax return by establishing residency. A person is considered a bona fide resident of Puerto Rico if they meet the presence test, which requires being physically present on the island for at least 183 days during the tax year. Additional criteria, such as the tax home test and the closer connection test, ensure that an individual’s primary center of personal and financial life is genuinely in Puerto Rico.

Once residency is established, the requirement to file a tax return is based on gross income. An individual must file a return if their gross income is greater than the personal exemptions they are entitled to claim.

Selecting the correct filing status is necessary, as it directly impacts the tax rates and deductions applied. Puerto Rico recognizes four statuses:

• Single, for unmarried individuals.
• Married Filing Jointly, for married couples who combine their income.
• Married Filing Separately, for married individuals who choose to file separate returns.
• Head of Household, for unmarried individuals who pay for more than half of the household expenses for a qualifying person.

Individual Income Tax Rates and Brackets

Puerto Rico’s individual tax system uses marginal tax rates, which apply to different portions of a taxpayer’s income. The tax liability is calculated based on progressive brackets that vary by filing status, and the rates are applied to net taxable income.

For individuals filing as Single or Married Filing Separately, income up to $9,000 is taxed at a 0% rate. The income between $9,001 and $25,000 is taxed at 7%. For income from $25,001 to $41,500, the rate is 14%. Income falling between $41,501 and $61,500 is taxed at 25%, and any income over $61,500 is subject to a 33% tax rate.

For those Married Filing Jointly, the brackets are wider to accommodate combined incomes. The tax rates remain the same, but the income thresholds are doubled for the initial brackets. For example, the 7% rate applies to the portion of income over $18,000 up to $50,000, and the 14% rate applies to income over $50,000 up to $83,000. This structure ensures that a couple filing jointly does not face a higher tax burden than they would if they were single.

To illustrate how these marginal rates function, consider a single individual with a net taxable income of $50,000. The first $9,000 is not taxed. The income from $9,001 to $25,000 ($16,000) is taxed at 7%, resulting in $1,120 of tax. The next portion of income, from $25,001 to $41,500 ($16,500), is taxed at 14%, adding $2,310. The final portion of income, from $41,501 to $50,000 ($8,500), is taxed at 25%, which adds $2,125. The total tax liability would be the sum of these amounts: $5,555.

Calculating Your Taxable Income

The tax rates are applied to taxable income, not an individual’s total earnings. To arrive at this number, taxpayers subtract deductions and exemptions from their gross income, which includes all income from sources like wages, self-employment, and investments. From gross income, certain adjustments are made to calculate Adjusted Gross Income (AGI).

Unlike the U.S. federal system, Puerto Rico does not offer a standard deduction. Instead, taxpayers must itemize deductions to reduce their AGI. Common itemized deductions include contributions to qualified charitable organizations, which are generally limited to 50% of AGI. Taxpayers can also deduct certain medical expenses that exceed 6% of their AGI and interest paid on a mortgage for a primary residence, though this is limited to the lesser of $35,000 or 30% of AGI.

After itemizing deductions, taxpayers can further reduce their taxable income by claiming personal and dependency exemptions. The personal exemption is $3,500 for a single individual and $7,000 for a married couple filing a joint return. An additional exemption of $2,500 is permitted for each qualifying dependent.

Other Key Puerto Rico Taxes

The most prominent tax besides income tax is the Sales and Use Tax, known locally as the IVU (Impuesto sobre Ventas y Uso). The general IVU rate is 11.5%, which is composed of a 10.5% commonwealth rate and a 1% municipal rate. Certain items, such as designated professional services and business-to-business services, are subject to a reduced rate of 4%.

For businesses operating as corporations, Puerto Rico imposes a corporate income tax. The system uses a normal tax of 18.5% and adds a graduated surtax on income above certain thresholds. This structure results in a maximum combined corporate tax rate of 37.5%. This tax applies to the net income of corporations doing business on the island.

Real property taxes are not administered at the commonwealth level but are assessed and collected by autonomous municipalities through the Municipal Revenue Collection Center (CRIM). The tax is based on the assessed value of real estate, including land and buildings, and the rates vary by municipality. These revenues are a primary source of funding for local government services.

Tax Incentives for Individuals and Businesses

Puerto Rico offers tax incentives designed to attract investment and stimulate economic growth, which are consolidated under the Incentives Code, commonly known as Act 60. This legislation combines and refines numerous prior tax laws, including the well-known Act 20 for export services and Act 22 for individual investors. These programs provide tax reductions to eligible individuals and businesses that relocate to the island.

One of the most popular components is the Individual Resident Investor Tax Incentive, which is Chapter 2 of Act 60. This incentive offers a 100% tax exemption from Puerto Rico income taxes on passive income for new bona fide residents. This includes income from interest and dividends, as well as certain capital gains realized after establishing residency. To qualify, individuals must not have been a resident of Puerto Rico in the years leading up to their move and must meet specific requirements, such as purchasing a residential property and making an annual charitable donation.

For businesses, the Export Services Tax Incentive, found in Chapter 3 of Act 60, grants a 4% corporate tax rate to companies that establish operations in Puerto Rico to provide services to customers located outside the island. The goal is to position Puerto Rico as a global hub for service-based businesses. Eligible activities include:

• Consulting
• Research and development
• Advertising
• Investment banking