Wednesday, February 19, 2020

Puerto Rico Treasury Makes Optional Tax Rate Available

By on January 23, 2020

Puerto Rico Treasury Department. (Juan J. Rodríguez / CB)

SAN JUAN — Puerto Rico Treasury Secretary Francisco Parés Alicea on Thursday urged taxpayers individuals and corporations dedicated to the provision of services to consider the so-called Optional Contribution as an alternative when filing their income tax return for 2019.

“This is one of the main changes approved in the Tax Reform of 2018 and an alternative that could facilitate compliance with tax obligations in a simpler way,” the secretary said in a press release.

The Optional Contribution is based on gross income, without deductions and without personal or dependent exemptions, which is paid, as a taxpayer option, at a preferential rate that fluctuates between 6% and 20%, depending on the total gross income during the taxable year.

“Any taxpayer dedicated to the provision of services, including self-employed individuals, corporations and pass-through entities, may opt for the Optional Contribution and fulfill their tax liability at a tax rate much lower than the regular income tax rate. In the case of individuals the maximum income tax rate is 33% and in the case of corporations it is 37.5%. The Optional Contribution can be as low as 6%. The maximum Optional Contribution rate applicable to those taxpayers whose gross income exceeds $500,000 will be 20%,” Parés explained.

The official added that there are about 173,000 taxpayers who are self-employed in the country on the island. Of these, 90% make less than $100,000 in gross income per year, so the majority would be taxed under the Optional Contribution rate of 6%.

To opt for the Optional Contribution, income must derive substantially from the provision of services.
“That earned income must represent at least 80% of the total gross income received during the taxable year; in addition, these taxpayers should not have a tax balance pending payment when the term established by the [Internal Revenue] Code for payment of the amount determined as a contribution by the taxpayer has expired,” he said.

However, those who opt for the optional return must pay the total tax determined under this option by Jan. 31, the deadline established by the Internal Revenue Circular Letter 20-02, to send the last estimated payment term of the 2019 taxable year.

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