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TaxBites 2019-02

Puerto Rico Treasury Department Grants Moratorium for Federal Government Employees Payment Plans

The Puerto Rico Treasury Department, hereinafter PRTD, granted a moratorium on Payment Plans Agreements to employees of the Federal Government affected by the partial governmental shutdown. Specifically, the affected taxpayers may default with the Payment Plans during the period between January 1, 2019 and March 31, 2019 or until the date of reopening of the Federal Government, whichever occurs later. The PRTD will not impose fines, interest or penalties for any unpaid amount during the mentioned period.

Optional Tax Election & Partial Waiver Application for Individuals and Corporations rendering Services

The PRTD established the process for the Optional Tax election and the request for a partial waiver of the withholding tax to any individual or corporation engaged in a service trade or business, whose projected total gross income for tax year 2019 does not exceed $ 100,000.

For the tax year 2019, any self-employed individual or a corporation that renders services may choose the Optional Tax, if the following requirements are met:

  • The income received must be substantially from compensation for services rendered;
  • All income paid during the year for such services must be reported in an informative return (480s);
  • All income received must be subject to the withholding of tax or any resulting tax be covered by making estimated tax payments.

The PRTD shall consider that the accrued income is substantially derived from services rendered when it represents at least 80% of the gross income received during a tax year. However, these taxpayers must cover the total tax attributable to income from other sources, via other withholdings or the estimated payments.

Every taxpayer who complies with the aforementioned requirements, and whose gross income from services is less than $100,000, may request a partial waiver from the withholding tax. For tax year 2019, said partial waiver will not be obtained from the PRTD. Instead the taxpayer must submit a sworn statement to each payor.

In the case of individuals, the sworn statement must include the following information:

  1. Taxpayer’s full name, marital status, profession and residence;
  2. Social Security Number and Employer Identification Number (EIN), if applicable;
  3. Merchant Registration Number;
  4. An assertion stating the following:
    1. That (he/she) is a self-employed engaged in a service trade or business;
    2. That the income from services expected to be earned during tax year 2019 comes substantially from rendering services as an independent contractor;
  • That the total gross income corresponding to the year 2019 will be reported in an informative return and will be subject to tax withholding, as set forth in Section 1062.03 of the Code[1];
  1. That, by virtue of the signature of the sworn statement, it is established that the income projection for the tax year 2019 will not exceed $ 100,000, and for this reason the Optional Tax of 6% on the gross income is chosen for the tax year 2019;
  2. That, once the election has been made to benefit from the Optional Tax, (he/she) will be obligated to pay under said option;
  3. That thereby the payor should only withhold taxes at the rate of 6% instead of what is established in Section 1062.03(a) of the PR Internal Revenue Code.

In the case of Corporations that substantially render services, the sworn statement must include the following information:

  1. Full name, marital status, profession and residence of the person who signs the sworn statement on behalf of the corporation;
  2. Position that said person occupies in the corporation. This declaration may be subscribed only by the president, vice president or other principal officer, by the treasurer or assistant treasurer or another chief financial officer.
  3. Name of the corporation, Employer Identification Number (EIN) and Merchant Registry number;
  4. An assertion stating the following:
    1. That the person signing the sworn statement is duly authorized to appear before the PRTD and carry out the election of the Optional Tax established by Section 1022.07 of the Code for the tax year 2019;
    2. That the gross income expected by the corporation during the tax year 2019 comes substantially from the rendering of services;
  • That the total gross income corresponding to the year 2019 will be reported in an informative return and will be subject to tax withholding, as set forth in Section 1062.03 of the Code[2];
  1. That, by virtue of the signature of the sworn statement, it is established that the corporation projects that its income for the tax year 2019 will not exceed $ 100,000, and for this reason it is eligible for the Optional Tax of 6% on the gross income for the tax year 2019;
  2. That, once the election has been made to benefit from the Optional Tax, it will be obligated to pay under said option;
  3. That, therefore, it requests the payor withhold tax at a rate of 6% instead of what is established in Section 1062.03 (a) of the Code.

The payer will accept the sworn statement and keep it in record as evidence of the request for reduction in the withholding tax rate on income at the source for the year 2019.

In the case of taxpayers who are eligible for the Optional Tax, but who for the tax year 2019 choose not to submit the sworn statement to their clients, they will be subject to the withholding tax of 10%. Nevertheless, in these cases the taxpayer may chose the Optional Tax at the time of filing the income tax return for the tax year 2019.

[1] Although the PRTD does not state it, the sworn statement should say that in case no withholding is made, the tax will be covered by estimated tax payments.

[2] See footnote 1.

About the Author

Carrion Sanchez LLC
Carrion Sanchez LLC
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Carrión Sánchez, LLC is a highly dynamic legal firm specialized in tax and corporate matters for high-net-worth individuals and businesses within and without Puerto Rico. Contact Us at [email protected]

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