Puerto Rico Income on 499R-2/W-2PR

[rgarratt]

I have a 499R-2/W-2PR from work in Puerto Rico. My employer withheld Puerto Rico income tax, social security, and Medicare. Do I report the total wages as foreign income in TurboTax? Also, where do I enter into TurboTax the social security and Medicare tax withholding amounts? I understand that I will need to file an income tax return for Puerto Rico and then will be able to get a U.S. income tax credit based on the actual amount of income tax paid in Puerto Rico.

[DaveF1006]

It depends. To clarify, are you a bona fide resident of Puerto Rico or are you a US citizen that worked in Puerto Rico? According to this IRS source, if you are a US Citizen and not a bona fide resident of Puerto Rico, you must report your worldwide income.  This means you will report your Puerto Rico income.

The good news is that you may receive a foreign tax credit for ALL taxes paid to Puerto Rico. In fact, according to this IRS document,  all qualified taxes paid to U.S. possessions are considered foreign taxes. For this purpose, U.S. possessions include Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands and America Samoa. This includes Social Security and Medicare taxes.

[rgarratt]

I am a U.S. citizen - not a bona fide resident of Puerto Rico.

[PattiF]

Yes, you also have to file a tax return for Puerto Rico since you are not a bona fide resident for 2021, along with a US tax return.  

If you are a U.S. citizen or resident alien, but not a bona fide resident of Puerto Rico during the tax year, you must generally file the following returns. 

• A Puerto Rico tax return reporting only your income from Puerto Rico sources. Wages for services performed in Puerto Rico, whether for a private employer, the U.S. government, or otherwise, are income from Puerto Rico sources.
• A U.S. tax return reporting income from worldwide sources. Generally, you can claim a foreign tax credit for income taxes paid to Puerto Rico on the Puerto Rico income that is subject to Puerto Rico taxes and not exempt from U.S. taxes.

Since you are not considered a bona fide resident of Puerto Rico, you want to prepare the Puerto Rico return first if possible.  This is to determine the US Credit.  Your credit is not based on tax withheld, but rather your tax withheld minus refund or in addition to additional tax due.  

TurboTax does not support a Puerto Rico return. You will have to prepare your return from the Puerto Rico website. It is in Spanish but most computer software offers a translation if needed.

Publication 570 from the IRS will give you more information about this.

[munizcpa]

My question , Where in 1040 I placed the 499-W2 forms of salaries earned by a USA bona fide resident.

[LindaS5247]

Form 499-R-1C (Adjustments to Income Tax Withheld Worksheet) Form 499R2/W2PR (Withholding Statement) - This withholding statement is the Puerto Rico equivalent of the U.S. Form W2 and should be prepared for every employee. 

If you are not a bona fide resident of Puerto Rico during the entire tax year, you will instead file the following returns: 

1. A Puerto Rico tax return (Form 482) reporting only your income from Puerto Rico. Wages for services performed in Puerto Rico, whether for a private employer, the U.S. Government, or otherwise, is income from Puerto Rico.
2. A U.S. tax return (Form 1040) reporting all worldwide income. If you are double taxed by both the U.S. and Puerto Rico, you can claim a foreign tax credit on Form 1116 for the income taxes paid to Puerto Rico.

Since you are not considered a bona fide resident of Puerto Rico, you want to prepare the Puerto Rico return first if possible.  This is to determine the US Credit.  Your credit is not based on tax withheld, but rather your tax withheld minus refund or in addition to additional tax due.  To prepare the return for Puerto Rico, you might want to visit this website as the Puerto Rico return is not supported in TurboTax.

Per IRS Publication 570  if you are a U.S. citizen or resident alien:

If you are a U.S. citizen or resident alien but not a bona fide resident of Puerto Rico during the tax year, you must generally file the following returns:

A Puerto Rico tax return reporting only your income from Puerto Rico sources. Wages for services performed in Puerto Rico, whether for a private employer, the U.S. government, or otherwise, are income from Puerto Rico sources.

A U.S. tax return reporting income from worldwide sources. Generally, you can claim a foreign tax credit for income taxes paid to Puerto Rico on the Puerto Rico income that is subject to Puerto Rico taxes and not exempt from U.S. taxes (see chapter 4 for more information).

Click here for Pub 570.

Click here for additional information of Puerto Rican Income.

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