On September 29, 2017, the Disaster Tax Relief and Airport and Airway Extension Act of 2017 was signed into law by Congress, which provides tax benefits to taxpayers impacted by hurricanes Harvey, Irma and Maria.
Among other things, the Act provides tax credits to employers whose operations were interrupted due to damages caused by hurricanes Irma and Maria, but retained and continued paying salaries to their employees although significant business operations had not resumed (“Credit”).
The U.S. Treasury Department, interpreting the provisions of the Act, as amended by the Bipartisan Budget Act of 2018, and considering the tax particularities of employers in Puerto Rico, determined that the credit applicable to employers would be as follows:
- Employers with a taxable net income over ten million dollars ($10,000,000) for tax year 2017, are eligible for credit in the form of a cash refund of 26% of the first $6,000 in Qualified Wages paid or incurred by each Eligible Employee during the Eligible Period. The maximum refund amount for this type of employer is up to one thousand five hundred and sixty dollars ($1,560) for each Eligible Employee.
- Employers with a taxable net income over ten million dollars ($10,000,000) for tax year 2017, are eligible for a credit in the form of a cash refund of 32% of the first $6,000 in Qualified Wages paid or incurred by each Eligible Employee during the Eligible Period. The maximum refund amount for this type of employer is up to one thousand nine hundred and twenty dollars ($1,920) for each Eligible Employee.
A. Eligibility Requirements
The employer is eligible to receive the aforementioned credit if it complies with the following requirements:
- Operated a business at the time Puerto Rico was impacted by hurricanes Irma and/or Maria.
- Had Eligible Employees on payroll at the time Puerto Rico was impacted by hurricanes Irma and/or Maria.
- The business became inoperable after the impact of hurricanes Irma and/or Maria.
- Paid qualified wages to the Eligible Employees during the Eligible Period.
- Electronically filed all Withholding Statements (Form 499R-2/W-2PR), Employer's Quarterly Return of Income Tax Withheld (Form 499 R-1B), Quarterly Unemployment & Disability Insurance Contribution Declaration (Form PR-SD-10), and Quarterly Federal Employer Declaration (Form 941-PR), which should have been filed for year 2017.
- It is registered in the unified Merchant Registry system (“Sistema Unificado de Rentas Internas” or “SURI” in Spanish) of the Puerto Rico Treasury Department.
In the case of employers impacted by hurricane Irma, their businesses must be located in one of the following municipalities: Canóvanas, Cataño, Culebra, Dorado, Fajardo, Loíza, Luquillo, Toa Baja, Vega Baja or Vieques.
B. Employee Retention Credit Application Procedure
Employers can only apply for the credit electronically through the digital platform designed by the Treasury Department as part of the application used by the Eligible Employer to file the Employer's Quarterly Return of Income Tax Withheld (Form 499 R-1B).
The platform to apply for the credit will be available until Monday, December 31, 2018. The Treasury Department will not accept or process paper applications. The system can be accessed through the Treasury Department website: www.hacienda.pr.gov under the Employer Section, Hacienda Virtual Subsection.
The Treasury Department prepared a guide structured as questions and answers, titled Guide for the Benefit for Withholding of Employees to Employers Affected by Hurricanes Irma and Maria ("Guía para el Beneficio por Retención de Empleados a Patronos Afectados por el Paso de los Huracanes Irma y María" in Spanish). The guide can be accessed through the Treasury Department’s website.
The contents of this communication is a summary of the Internal Revenue Circular Letter Number 18-11, and does not constitute a legal consultation. There are specific circumstances in the Circular Letter which might require particular attention and which are not contemplated in the present communication. If you have any questions or doubts, please feel free to contact us.