Puerto Rico’s working class could get higher income tax refunds next year

Thousands of working-class families in Puerto Rico stand to receive significant benefits for tax year 2023 with an inflation-adjusted increase in the work credit and a potential refundable incentive that could total about $1.5 billion in relief, confirmed Treasury Secretary Francisco Parés.

During a news conference, Parés stated that Gov. Pedro Pierluisi “would have preferred the approval of House Bill 1839 endorsed by the Legislative Assembly, but we’re working on a proposal that would grant a refundable incentive, like that proposed in the Tax Relief Bill for the taxable year 2023. If this materializes, this will represent a disbursement of approximately $260 million, mainly benefiting more than 177,000 working-class families.”

The original House Bill was passed by the legislature, but while the government said it would have a fiscal effect of some $550 million, the Financial Oversight and Management Board for Puerto Rico argued that it would be greater – $750 million the first year and $3 billion in five years. So, it was shelved and substituted.

The new proposal represents an agreement between the government, the legislature and the oversight board, which objected to the bill, which would have granted tax relief to individuals earning between $41,000 and $300,000.

“The Board was going to challenge that, which would have postponed implementation for a year, in which case it would put at risk any possibility of a benefit for the 2023 tax year,” Parés said, adding that the possible approval of a refundable incentive would be a “positive step to continue the dialogue with the board and improve the tax system permanently, both for individuals and corporations.”

“Gov. Pierluisi proposes amending the budget for the current fiscal year and increasing it by $260 million to grant this refundable incentive. After finalizing the agreement, the governor would be submitting a joint resolution to the legislature that, after being approved and signed by the governor, Treasury will work on the guidelines to grant it,” said Parés.

How it works
As proposed, the refundable incentive would offset the difference between each individual’s tax liability for 2023 and what would have been due under House Bill 1839.

The Work Credit benefit, first granted in 2021, will see an increase in the tax return for the 2023 tax year. The increase will provide an additional $233 million to 669,000 families, accounting for an inflation adjustment.

The agency’s Internal Revenue Information Bulletin No. 23-05 established an inflation adjustment to the Work Credit, equivalent to 15% of the gross earned income (IBG, in Spanish). In the case of an individual taxpayer without a dependent, if the IBG is greater than $17,660 but does not exceed $28,700, the maximum credit will be $1,656. This amount will reduce by 15% of the IBG that exceeds $17,660.

For married taxpayers filing a joint return without a dependent, if the combined IBG is greater than $19,870 but does not exceed $30,910, the maximum credit of $1,656 will reduce by 15% of the IBG exceeding $19,870.

For individuals with a qualified dependent, the credit will be equivalent to 33.98% of the IBG, up to a maximum of $3,864. If their IBG is greater than $19,870 but not over $34,222, the maximum credit is reduced by 26.92% of the IBG over $19,870.

Married taxpayers filing jointly with a dependent will see a similar reduction. If their combined IBG is more than $24,280 but not over $38,632, the maximum credit of $3,864 reduces by 26.92% of the IBG over $24,280.

Eligible individuals with two qualified dependents will get a credit equivalent to 40% of the IBG, up to $6,072. For individual taxpayers, if the IBG is more than $23,180 but not over $40,841, the maximum credit reduces by 34.38% of the IBG over $23,180.

Married taxpayers with two dependents and an IBG more than $27,590 but not over $45,251 will see a maximum credit of $6,072 reduced by 34.38% of the IBG over $27,590.

Individuals with three or more qualified dependents are eligible for a Work Credit of 44.83% of the IBG, up to $7,173. If an individual’s IBG is more than $23,180 but not over $44,147, the maximum credit reduces by 34.21% of the IBG over $23,180.

Similarly, married taxpayers with three or more dependents and a combined IBG of more than $27,590 but not over $48,557 will have a maximum credit of $7,173 reduced by 34.21% of the IBG over $27,590.