An employer is required to withhold income tax at source upon the salaries and wages paid to its employees performing services in Puerto Rico. In this connection, the employer is required to register its employer’s identification number with the Puerto Rico Treasury Department by filing Form SC 4809, Information of Identification numbers. An exemption of the income tax withholding is provided for employees from ages 16 to 26 on the first $40,000 of taxable wages.
The withholding rates depend upon the personal exemption and credits for dependents claimed in the withholding exemption certificate (Form 499R4l) to be completed by every employee. The Treasury Department publishes tables for the determination of the tax to be withheld together with an instruction manual. The tax is determined by one of two methods: the percentage method or the wage bracket method.
There is no wage limitation for the withholding. Every employer having one or more employees should withhold the tax.
The Income Tax Withheld should be deposited as follows:
- Employers whose quarterly withholdings have not exceeded $500.00. These employers are not required to make the monthly deposit; instead, they will pay said income tax when filing the quarterly return.
- New employers and employers who have withheld and reported $50,000 or less during the lookback period which begins July 1 and ends June 30 of the preceding year. These employers will be considered monthly depositors and will continue depositing their income tax no later than the 15th day of the month following the month in which the withholding was made.
- Employers who have withheld and reported over $50,000 during the lookback period which begins July 1 and ends June 30 of the preceding year. These employers will be considered semiweekly depositors and shall deposit the income tax withheld on Wednesdays or Fridays, depending on the day the payroll is paid. That is, if the employer pays the payroll on Wednesday, Thursday or Friday, the deposit must be made the following Wednesday. However, if the payroll is paid on Saturday, Sunday, Monday or Tuesday, the deposit must be made the following Friday.
- Employers who have withheld $100,000 or more in any day of a deposit period. These employers shall make the deposit no later than the closing hour of the next banking day.
The determination regarding whether an employer is a monthly or semiweekly depositor will be made annually based on the employer’s tax withholding payment history during the 12-month lookback period ending on June 30 of the preceding year.
The tax withheld is payable to the Secretary of the Treasury and must be deposited in any of the banking institutions designated as depositaries of public funds and authorized as such by the Secretary of the Treasury. Payment should be accompanied by the monthly deposit coupon (Form499R-1).
The following forms and reports must be filed or used in regards to income taxes on wages or salaries withheld at source:
- Form 499R-1 (Monthly Deposit of Income Tax Withheld) - This form is used to deposit the taxes withheld during the prior month.
- Form 499-R-1B (Employer’s Quarterly Return of Income Tax Withheld) - This return must be filed on or before April 30, July 31, October 31 and January 31 of each year. Any portion of the tax that has not been paid or deposited under the above rules, must be paid with the quarterly Form 499-R-1B.
- 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. The form comes in five copies. The original of this Form, together with Form W3PR, shall be filed with the Social Security Administration not later than the last day of February following the end of the calendar year for which the withholding was performed. Copy A, together with Form 499R3 shall be filed with the Bureau of Income Tax no later than January 31 following the end of the calendar year. Copies B and C are for the employees. Copy D is for the employer’s records.
- Form 499R-2c/W-2c PR (Corrected Withholding Statement) - This Form is used to correct wage and tax information.
- Form 499R3 (Annual Reconciliation Statement) - This form is the conciliation statement that should be filed with the Secretary of the Treasury on or before January 31 of every year accompanied with copy A of Form 499R2/W2PR. The form should include the figures of tax withheld for the prior calendar year.