Puerto Rico Department Of The Treasury Issues Q&As Clarifying Guidance On Qualified Payments Made For Hurricane María Disaster Assistance

Author:Ms Ana María Bigas-Kennerley
Profession:Littler Mendelson

As previously discussed, on October 4, 2017, the Puerto Rico Department of the Treasury (the "PR Treasury") issued Administrative Determination No. 17-21 ("AD 17-21") granting temporary income tax exemption for payments considered "Qualified Payments made for Disaster Assistance" related to the recent hurricane. To clarify various aspects of AD 17-21, the PR Treasury issued a series of questions and answers (Q&As). The following is a summary of the clarification provided in the Q&As.

Qualified Payments Made for Disaster Assistance ("Qualified Payments")

PR Treasury clarifies that Qualified Payments are excluded from the definition of "gross income." Although independent contractors were not specifically included as being allowed to receive Qualified Payments under AD 17-21, the PR Treasury is allowing independent contractors to receive Qualified Payments from merchants, even when there is no employee-employer relationship, as previously required under AD 17-21. Payments made by merchants that do not have any employee or independent contractor relationship with the individual will not be covered by the provisions of AD 17-21, but instead, by the gift tax provisions under the Puerto Rico Internal Revenue Code of 2011, as amended ("PR Code"). Qualified Payments made to employees must be reported as exempt income on PR Treasury Form 499R-2/W-2PR, Box 16 or 16A. Qualified payments made to independent contractors must be reported as exempt income on PR Treasury form 480.6D - Informative Return for Exempt Income. The PR Treasury clarifies that Qualified Payments will be tax deductible for the employer, regardless if they exceed the $1,000 monthly limitation. However, such excess must be reported as taxable income to the employee/independent contractor on PR Treasury form 499R-2/W-2PR, for payments made to employees, or on PR Treasury form 480.6B, for payments made by independent contractors. The PR Treasury clarifies that the $1,000 monthly limitation only applies to Qualified Payments made in cash directly to the employee. Qualified Payments made directly to a provider of goods or services for the benefit of an employee or independent contractor will not be subject to the $1,000 limitation, and thus, such amounts will be excluded from the gross income of the employee/independent contractor. Qualified Payments made by an employer to its employees to cover necessary and reasonable expenses such as meal expenses, medicines and medical expenses...

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