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:
