Federal Employment Tax in Puerto Rico

Employers in Puerto Rico are subject to the taxes imposed by the Federal Insurance Contribution Act (FICA) (Social Security and Medicare taxes) and the Federal Unemployment Tax Act (FUTA). An employer is a person or organization for whom a worker performs services as an employee. As an employer you are required to withhold, report, and pay employment taxes on wages paid.

To file the various employment tax returns, you need an Employer Identification Number (EIN). If you do not have an EIN, you may apply for one online at the IRS.gov website, www.irs.gov, Apply for an Employer Identification Number (EIN) Online link. You may also apply for an EIN by calling 800-829-4933, or you can fax or mail Form SS-4 (PR).

FICA taxes are used to finance the Social Security and Medicare systems. FICA taxes consist of two components: the Social Security tax and the Medicare tax. You must withhold the employee portion of FICA taxes from your employees' wages and contribute the employer portion of FICA tax. The employer rate for social security tax is 6.2%. The employee rate for social security tax is 4.2%. The Medicare tax rate is 1.45% each (for a total of 2.9%) for employers and employees.

The forms used by employers in Puerto Rico to report the Social Security and Medicare taxes are: Form 941 (PR), Form 943 (PR), Form 944 (PR), and Form f1040prh.pdf for household employers. In addition, the forms used by employers in Puerto Rico to make corrections to employment taxes are: Form 941-X (PR), Form 943-X (PR), Form 944-X (PR) and amended Form f1040prh.pdf.

If you are not an agricultural employer and all of your employees are bona fide residents of Puerto Rico, file Form 941-PR to report all wages paid, tips your employees reported to you, and other compensation, and Social Security and Medicare taxes. Form 941-PR is filed quarterly and is due the last day of the month following the end of the quarter. For example, for wages you paid January through March (the first quarter of the year) Form 941-PR is due April 30.

If the due date for filing a return falls on a Saturday, Sunday or legal holiday, you may file the return on the next business day. The term “legal holiday” means any legal holiday in the District of Columbia. For a list of legal holidays see Publication 15, (Circular E), Employer's Tax Guide, or visit IRS.gov and enter the words “legal holidays” in the search box.

If you are not an agricultural employer and all of your employees are bona fide residents of Puerto Rico, you may be eligible to file annual Form 944-PR. The Form 944-PR generally is filed annually and is due the last day of January following the end of the tax year. Employers that have an estimated employment tax liability of $1,000 or less for the entire calendar year are eligible to file an annual Form 944-PR.

Employers are not permitted to file Form 944-PR unless they are notified by the IRS that they qualify to file this form. Employers who may be eligible to file Form 944-PR, because their estimated annual employment tax liability is $1,000 or less, have to contact the IRS to elect to file annually (Form 944-PR). Employers required to file Form 944-PR, who want to file Forms 941-PR instead, must notify the IRS they are electing to file quarterly Forms 941-PR and opting out of filing Form 944. For further information, see Revenue Procedure 2009-51 and the Instructions 944 (PR).

Employers notified to file Form 944-PR whose businesses grow during the year and exceed the $1,000 eligibility threshold must still file Form 944-PR for the year. Employers who exceed the eligibility threshold will be notified by the IRS that their filing requirement has been changed to Form 941-PR for a particular year.

Most employers are required to deposit their FICA taxes before Form 941-PR is filed. If you are filing Form 944-PR, you may be able to pay your FICA taxes with your return. For additional information about the Form 941 (PR), refer to Tax Topic 758, in English, or see the Instructions 941 (PR). For more information about the Form 944 (PR), refer to Tax Topic 758 or see the Instructions 944 (PR) in Spanish. For information about the rules to make deposits, refer to Tax Topic 757, in English. If you have deposited all your tax on time, you have 10 additional days to file.

If you pay a household employee cash wages, you may be required to withhold and pay FICA taxes on all wages you pay to that employee. To see if you are required to withhold and pay these taxes, see Publication 926, Household Employer's Tax Guide, in English. File Form f1040prh.pdf to report and pay social security and Medicare taxes corresponding to the employer and the employee for all household employees.

Household employees include housekeepers, maids, baby-sitters, gardeners, and others who work in or around your residence as your employee. Repairmen, plumbers, contractors, and other business people who are self-employed and own their equipment and control how the work is performed, normally are not considered household employees.

If you are an agricultural employer in Puerto Rico, you must file Form 943 (PR) to report the employer's and the employee's share of the FICA taxes for agricultural employees. To see if you are required to withhold and pay FICA taxes on your agricultural employees, refer to Publication 51, (Circular A), Agricultural Employer's Tax Guide, in English. Form 943-PR is an annual return you file at the end of each calendar year and is due January 31. Most employers are required to deposit both the employer and employee portions of FICA taxes before the Form 943-PR is filed.

Publication 15 in English and Publication 179 in Spanish, explain the requirements for deposits.

If you are an employer in Puerto Rico, you might have to file a Federal Unemployment Tax Return. To see if you are required to pay FUTA taxes, refer to Publication 51 if you are an agricultural employer or Publication 926 if you are a household employer. All other employers should refer to Publication 15 or Publication 179 (Spanish version). With the exception of those who use Anexo H-PR (Form 1040) for household employees, employers in Puerto Rico who are subject to FUTA are required to file Form 940-PR to report and pay FUTA taxes. Form 940 (PR) is generally due by January 31. Most employers are required to deposit FUTA taxes. FUTA taxes are not withheld from the employees' wages. The FUTA tax rate was 6.2% through June 30, 2011, and decreased to 6.0% beginning July 1, 2011.