Tax Prepayment Window Closes On October 31, 2014, For Puerto Rico Retirement Plans

Author:Ms Nancy Gerrie and Jeffrey M. Holdvogt
Profession:McDermott Will & Emery

On July 1, 2014, Puerto Rico adopted new legislation (Tax Act 77), which provides a window from July 1, 2014 - October 31, 2014, for participants in Puerto Rico retirement plans to prepay at reduced rates Puerto Rico income tax on the value of accrued benefits. On August 6, the Puerto Rico Treasury Department issued guidance on the prepayment option via Administrative Determination No. 14-16. The guidance clarified how participants in Puerto Rico-qualified retirement plans may prepay to the Puerto Rico Treasury Department by October 31, 2014, income tax at the rate of eight percent on all or a portion of the participants' vested balance or accrued benefit. Retirement plan sponsors with Puerto Rico employees, both dual-qualified and Puerto Rico-only plans, should make sure their administrators are aware of and can comply with the tax prepayment rules in the event a participant submits a request.

The income tax prepayment may be made by an individual participant or by the plan trustee on behalf of a participant. If a participant is making the tax prepayment, he or she must complete and file three copies of Form SC 2911 with the Puerto Rico Treasury Department, along with a recent copy of a plan statement (no older than 30 days) reflecting the vested account balance or accrued benefit. Plan sponsors and administrators should expect that they may be asked by plan participants for updated account statements or accrued benefit estimates in order to satisfy this requirement.

Plan participants may make the tax prepayment from their own funds or from plan assets, if they are eligible to take a distribution. Plan administrators may need to provide assistance in completing...

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