PR Income Tax Relief on Qualified Disaster Assistance Payments for Individuals and Employees and Postponement of Collecting Tax Garnishments
23 October 2017
Exemption on Qualified Disaster Assistance Payments
On October 4, 2017, the Puerto Rico Department of Treasury (“PRTD”), issued Administrative Determination 17-21 (“AD 17-21”) to establish a temporary income tax exemption for certain payments made to help individuals repair, or to compensate for, damages and losses caused by Hurricane Maria.
Under AD 17-21, Qualified Disaster Assistance Payments will not be subject to income tax. Qualified Disaster Assistance Payments mean any payments to or for the benefit of an individual:
- To supply or pay for necessary and reasonable expenses, such as: food, medicine, gasoline, housing, medical expenses, children or dependent’s care, electricity generators, and funeral expenses, to the extent that such payments are made directly to the product or service provider;
- To pay for necessary and reasonable expenses incurred for the repair or rehabilitation of the principal place of residence, or the repair or replacement of its contents, to the extent that such repair, rehabilitation or replacement is attributable to damages caused by Hurricane Maria, and the payments are made directly to the product or service provider;
- Directly made to the individual, to provide for any monetary assistance to cover the cost of any damages or loss suffered by such individual as a result of Hurricane Maria; or
- Made by the Federal, State or Local Government, or any governmental agency or instrumentality, as a consequence of the damages caused by Hurricane Maria, to promote the general welfare, only to the extent the individual’s expense is not otherwise covered by insurance or other means.
To be considered as a Qualified Disaster Assistance Payment, the following requirements must be met:
If made to a non-employee
- Payments must be made between, or during, September 21, 2017 and December 31, 2017 (“Exemption Period”); and
- Payments received must be made in substitution of the individual’s unearned salary during the time out of work due to Hurricane Maria.
If made to an employee
- The total amount paid will be in addition to the ordinary compensation received by the employee;
- The employer cannot favor highly compensated employees over the rest of its employees; and
- The payments made directly to the employees will be limited to $1,000 monthly, and the same cannot be related to the employee’s position or salary.
Employer’s Reporting Requirements
When the Qualified Disaster Assistance Payment is made to an employee, the employer needs to submit by January 31, 2018 a sworn statement including the following information for each of the employees that received that benefit:
- Employee’s Name;
- Employee’s Social Security Number; and
- Total amount paid during the Exemption Period.
The PRTD will later inform how this information will be submitted to Treasury.
Also, the employer must report on Form 499R-2/W-2PR as exempt income the amount paid to the employee. These payments will be deductible to determine the employer’s net taxable income.
Interest-free loans to employees
Employers may also offer interest-free loans to their employees between September 21, 2017 to June 30, 2018 to assist the employee and/or his/her family to cover necessary and reasonable expenses, and for the construction or repair of the employee’s principal place of residence, incurred as a consequence of Hurricane Maria. The employee need not recognize taxable income for this loan transaction to the extent the total amount loaned does not exceed $20,000. The loan or loans can be offered to the employee in addition to the Qualified Disaster Assistance Payments.
Postponement of Garnishments to Employees
To continue to assist taxpayers after Hurricane Maria, the PRTD issued Informative Bulletin 17-24 ordering the suspension, for a period of 90 days, of any garnishment proceeding or process against an employee in favor of the PRTD. The suspension of the garnishments extends to those amounts that, according to the Puerto Rico Internal Revenue Code of 2011, as amended, constitute any type of encumbrance in favor of the Secretary, and any other salary withholding established as part of a payment plan agreement with the PRTD.
Please contact any of the members of the BDO team to continue the conversation.
Gabriel Hernández, CPA
Tax Advisory Services
Patricia Wangen, CPA, Esq.
Tax Compliance Services
Dialy M. Otero, CPA
Tax Advisory Services
Adianez Ortega, CPA, Esq.