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New Puerto Rico W-2 Reporting Requirements – Immediate Impact on January 2015 Filings

On February 3rd, 2015, the Puerto Rico Treasury Department (“Hacienda”) issued Tax Policy Informative Bulleting 15-03 (“IB 15-03”) regarding the applicable guidelines for the implementation and administration of certain amendments to the Puerto Rico Internal Revenue Code of 2011, as amended (the “Code”), as introduced in Act 135-2014 (“Act 135”). The new guidance from Hacienda will have immediate (and possible retroactive) impact on Hacienda forms 499R-2/W-2PR (“Withholding Statement” or form “W-2s”) reported by employers for Puerto Rico employees for the year 2014 and thereafter until 2019.

Background: On August 7, 2014, the Governor of Puerto Rico signed Act 135 which (among others) amended the Code to include a gross income exemption of an annual amount of up to $40,000.00 for salaries, service payments and self-employment income earned by Puerto Rico residents who at the close of tax years 2014 through 2019 are between the ages of 16 and 26 (“Eligible Individuals”).

IB 15-03: As indicated above, on February 3, 2015 Hacienda issued IB 15-03 to describe the steps that employers and other payors must take in order to be in compliance with Act 135 with respect to payments to Eligible Individuals. With respect to W-2’s, the guidance specifically states that employers must report the exempt gross income amounts of up to $40,000.00 earned by Eligible Individuals on line 16 on the Withholding Statement (“Exempt Salaries”). Any amount in excess of $40,000.00 should be reported on lines 7, 8, 9, and/or 10 of the W- 2, as applicable. In addition, IB 15-03 requires employers to report the status of Eligible Individuals by placing code “E” on line 16A (“Exempt Salaries Code”) on the form W-2.

Impact of IB 15-03 on W-2’s already issued: Since IB 15-03 was issued after the due date for filing W-2s (generally January 31, 2015) for year 2014, many employers will find that they will need to amend the Withholding Statement (via Hacienda form W-2cPR) to correct the information of the Eligible Individuals with respect to Exempt Salaries, and in order to be in compliance with IB 15-03.

This document has been prepared for information purposes only and is not intended as, and should not be relied upon, as legal advice. If you have any questions or comments about the above-mentioned statutes and wish to obtain more information related thereto, please contact us.