Percentages set for the employee-retention tax credit

On our May 22, 2018 Tax Alert we addressed the Puerto Rico Treasury Department’s requirements and procedures for employers to claim the employee-retention tax credit under the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (the “Act”).  Although at the federal level an eligible employer can claim a tax credit equal to 40% of the qualified wages (up to $6,000) of each eligible employee, the Act did not provide a percentage amount for Puerto Rico purposes.

The Bipartisan Budget Act of 2018 amended the Act to establish that Puerto Rico employers would benefit from tax credit of 26% or 32% of the total qualified wages paid to each eligible employee during the period the business was rendered inoperable until:

• the business resumed significant operations or
• December 31, 2017, whichever occurred first

The determination on whether the 26% or 32% will apply rests on the employer’s category:

Category No. 1 Employers – 26%

Employers whose net income subject to tax is more than $10,000,000 for 2017 taxable year, can claim a tax credit equal to 26% of the qualified wages paid or accumulated (up to $6,000) for each eligible employee.

In these cases, the maximum credit available for Category No. 1 Employers would be $1,560 ($6,000*26%) for each eligible employee.

Category No. 2 Employers – 32%

Employers whose net income subject to tax is $10,000,000 or less for 2017 taxable year, can claim a tax credit equal to 32% of the qualified wages paid or accumulated (up to $6,000) for each eligible employee.

In these cases, the maximum credit available for Category No. 2 Employers would be $1,920 ($6,000*32%) for each eligible employee.

In addition, the Puerto Rico Treasury Department issued a guide of questions and answers to assist employers on the determination of the employee-retention credit available for each eligible employee. Such guide is available on the following link:

Guía para el Beneficio por Retención de Empleados a Patronos Afectados por el Paso de los Huracanes Irma y María

Have you prepared your claim? Time is of essence. Please contact Omar Mues, Tax manager.