Wages
Minimum Wage: Puerto Rico
The Puerto Rico minimum wage applies to all employees covered by the federal Fair Labor Standards Act’s (FLSA). Effective on July 1, 2024, the minimum wage on all wages earned was increased to $10.50/hour in Puerto Rico.
Social Security and Medicare (FICA)
An employer generally must withhold part of social security and Medicare taxes from employees’ wages and the employer additionally pays a matching amount. The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. Employers are responsible for withholding the 0.9% Additional Medicare Tax on an individual’s wages paid above $200,000 in a calendar year, without regard to filing status.
Only the social security portion of tax has a wage base limit. The wage base limit is the maximum wage that is subject to the tax for that year. The base is $168,600 for earnings in 2024. There is no wage base limit for Medicare tax. All covered wages are subject to Medicare tax.
Social security withheld is remitted to the Internal Revenue Service on a daily, semi-weekly, monthly, quarterly, or annual basis, based on the amount withheld and due.
Social security deposits are reconciled and reported on Form 941 each quarter.
Federal Unemployment (FUTA)
The FUTA tax rate of 0.6%, net of a 5.4% federal tax credit, applies to the first $7,000 of wages paid to each employee during the year. This maximum credit applies if state unemployment taxes are timely paid in full and the state is not a credit reduction state as published by the US Department of Labor.
Employees do not pay this tax or have it withheld from their pay.
FUTA deposits are reconciled and reported on Form 940 annually.
Other Deductions
Other deductions that are required or authorized by law include child support, garnishment of wages, among others. Voluntary deductions include purchase of Savings Bonds, payments to nonprofits, credit unions, union dues, voluntary contributions to individual retirement accounts or charitable institutions, tax debt payment plans, fund-raising campaigns, stocks, among others. All voluntary deductions must be previously authorized in writing by the employee before the deduction is made
Minimum Wage: Federal
The Federal minimum wage is $7.25. However, in cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.
Puerto Rico Unemployment & Disability Benefits (SINOT)
Several U.S. states or territories have mandated short-term disability insurance programs where employers are required to contribute. The Puerto Rico Unemployment tax applies to the first $7,000 of wages paid to each employee during the year. The basic tax rate is adjusted for experience, plus a special tax of 1%. Only employers are subject to this tax.
Puerto Rico Disability tax of 0.6% applies to the first $9,000 of wages paid to each employee during the year and is shared equally by the employer (0.3%) and withheld from employees (0.3%). SINOT remittances are made quarterly to the Puerto Rico Department of Labor, as applicable. Gross wages are declared and reported quarterly even if those wages are not subject to SINOT.
Employees that are subject to the Chauffeur’s insurance tax are not subject to SINOT, and a private plan may be used as a substitute.
Puerto Rico unemployment and disability benefits tax withholding and employer deposits are reconciled and reported to the Department of Labor quarterly.
Puerto Rico Income Tax
Employers must withhold Puerto Rico income tax from employees’ wages in Puerto Rico based on the most recent tables issued by the Puerto Rico Treasury Department.
Employers may use Form W-4 or Form W-4(SP) to determine the amount to withhold. For federal income tax purposes, use the appropriate method and the appropriate withholding table described in Publication 15-T, Federal Income Tax Withholding Methods.
Employers must deposit withholdings based on the business type and amounts withheld, generally each month.
Puerto Rico payroll income tax withholding deposits are reconciled and reported on Form 499 quarterly.
Federal Income Tax
Puerto Rico residents are generally subject to Puerto Rico income tax. However, there are specific federal tax considerations depending on the individual’s employment status and location:
- Federal Employees in Puerto Rico: Federal employees, such as those working for the U.S. government, are subject to federal income tax on their wages. Employers must withhold federal income tax based on Form W-4 and use the appropriate federal withholding tables (Publication 15-T).
- Non-Federal Employees in Puerto Rico: Generally, wages earned by Puerto Rico residents working for non-federal employers are exempt from federal income tax. These individuals only need to pay Puerto Rico income tax on their wages.
- U.S. Employees Residing in Puerto Rico: U.S. employees residing in Puerto Rico who are not federal employees may have specific exceptions based on their residency status and U.S. tax obligations, so it is important to review individual circumstances for compliance.
- U.S. Employees Living in the Continental United States: U.S. employees residing in the 50 states are subject to federal income tax on their wages. In addition to federal withholding, they may also be subject to state income tax, depending on the state they live and work in. Employers should use the appropriate state withholding tables and follow state-specific guidelines.
Federal payroll tax deposits must follow IRS guidelines and deadlines, while reconciliation is reported annually on Form W-2 for federal purposes (or a W-2PR in Puerto Rico). Puerto Rico and State income tax filings, if applicable, are also handled according to state regulations.