US Payroll Tax Guide: Puerto Rico

Key takeaways

Puerto Rico is an unincorporated US territory, and employers are required to consider various payroll taxes and withholdings, including unemployment insurance.
Employers must also withhold and pay employer payroll tax to remain compliant with local requirements.
Other key considerations include temporary disability insurance, chauffeur tax, Christmas bonus, and workers’ compensation.

Employers must navigate various regulations and requirements to ensure proper payroll withholding in each US state and territory.

If you have employees in Puerto Rico, which is classified as an unincorporated territory of the United States, then this guide serves as a helpful introduction to what employers need to pay and withhold from payroll in Puerto Rico.

Paying unemployment insurance

On top of withholding federal taxes such as Medicare and Social Security taxes, employers are also responsible for withholding and paying certain Puerto Rico territory taxes from their employee’s payroll.

Unemployment insurance (UI) is a type of employer payroll tax or payroll withholding administered by the US Department of Labor. The national program provides temporary payments to people who become unemployed through no fault of their own, UI is paid by the employer through an online portal.

For more information on paying your unemployment insurance, the Puerto Rico Department of Labor and Human Resources is a valuable resource.

Withholding personal income tax from your Puerto Rico employee

Employers are responsible for withholding certain Puerto Rico territory taxes from your employee’s payroll, including personal income tax, also known as individual income tax.

Personal income tax is a tax on the income of Puerto Rico residents. It is deducted from the employee’s wages and withheld by the employer. After you withhold the tax from your employee, you are responsible for paying the amount you withheld to the territory. You can pay the withheld amount through Puerto Rico’s online portal.

For more information on paying the withholding amount, you can consult the Puerto Rico Department of Treasury.

Withholding and paying temporary disability insurance from your Puerto Rico employee

Temporary disability insurance, also referred to as disability benefits tax in Puerto Rico, provides benefits to workers for loss of salaries resulting from disability caused by sickness or accidents not related to their employment.

Every employer with one or more employees in Puerto Rico is subject to the tax, but a private plan may substitute it. Both employers and employees contribute to disability insurance in Puerto Rico.

Employers can file and pay disability benefits tax through Puerto Rico’s online portal. For more information on paying your disability benefits tax, the Puerto Rico Department of Labor and Human Resources is a helpful guide.

Paying your Puerto Rico chauffeur tax

In Puerto Rico, the chauffeur tax is withheld and paid in lieu of the disability benefits tax. Chauffeur tax is funded through both employer and employee contributions and applied when hiring employees who are required (or permitted) to operate motor vehicles as an integral and regular part of their jobs.

Employers must withhold a portion of the employee’s wages and remit both the withholding amount and employer contributions to the Puerto Rico Secretary of the Treasury and Department of Labor and Human Resources.

You can file and pay this tax by mailing the Bureau of Chauffeur’s Insurance at 505 Muñoz Rivera Avenue, San Juan, PR 00917. Puerto Rico statute offers more information regarding the chauffeur tax.

Paying your Puerto Rico employee a Christmas bonus

As an employer, you are required by statute to pay certain Puerto Rican employees a Christmas bonus.

Christmas bonus requirements are relevant to employers with employees who have worked more than 700 hours during the 12-month qualifying period. The qualifying period starts on October 1 of each year and ends on September 30 of the following year.

For more information on paying your employees their Christmas bonus, consult the Puerto Rico Department of Labor and Human Resources.

Paying your Puerto Rico workers’ compensation

On top of paying your Puerto Rico payroll taxes, you must also pay for workers’ compensation in the territory, even if you only have one Puerto Rico employee.

Unlike disability benefits tax, where the insurance pays workers for non-work-related illness and injury, workers’ compensation is insurance for an employee’s injury while performing their job.

Employers are required to purchase worker’s compensation insurance through the State Fund Corporation. The State Fund Corporation also provides additional information on workers’ compensation in Puerto Rico.

Simplify US payroll tax compliance with Deel

While this guide provides essential information on Puerto Rico payroll taxes, payroll compliance and state requirements extend beyond what is covered above. To streamline the process and ensure full compliance, companies can turn to Deel.

Deel offers a comprehensive solution for managing US and international payroll, including payments, taxes, worker classification, and more. Speak with an expert today to see how you can streamline your US payroll processes and ensure compliance with state regulations.

Disclaimer: This article is provided for general informational purposes and should not be treated as legal or tax advice. Consult a professional before proceeding.