March 16, 2018 Puerto Rico employers affected by Hurricanes Irma and María may qualify for an employee retention benefit The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Federal Disaster Tax Relief Act), signed by President Trump on September 29, 2017, provides a broad array of relief measures aimed at assisting in the recovery efforts of both individuals and businesses affected by Hurricanes Harvey, Irma and María. The Federal Disaster Tax Relief Act provides temporary tax relief for victims in hurricane disaster zones. For employers, the Federal Disaster Tax Relief Act includes tax relief in the form of a tax credit for wages paid to eligible employees (HDZ Retention Credit) during the disaster period (but no later than December 31, 2017). Overview of the HDZ Retention Credit The table below summarizes the key features of the HDZ Retention Credit and the eligibility rules: HDZ Retention Credit in Puerto Rico — Direct payment deposit Recently, the Puerto Rico Government announced that it reached an agreement, still to be formally finalized, with the United States Treasury to expand the HDZ Retention Credit to include a direct payment option available to eligible employers in Puerto Rico. To that effect, the Under Secretary of the Puerto Rico Treasury Department (PRTD) has stated that the Government intends to begin distributing HDZ Retention Credit funds to eligible employers in Puerto Rico as soon as the United States Treasury approves the disbursement of funds. According to PRTD officials, the agreement is expected to be finalized sometime in March 2018. Unlike the US, which has taxpayers claim the HDZ Credit on their federal income tax return, Puerto Rico would pay the HDZ Retention Credit directly to the eligible employer's bank account (Direct Payment Retention Credit). The PRTD announced that it will make an on-line application process available to facilitate claiming the Direct Payment Retention Credit. Implications The Direct Payment Retention Credit represents much-needed relief for eligible employers in Puerto Rico that have been affected by Hurricanes Irma and María. Employers are encouraged to begin analyzing eligibility and the potential claim amount of the HDZ Credit in preparation for the PRTD's on-line request process becoming available. Among areas that should be evaluated are the closure and inoperability dates of each location within the disaster zone, the identification of eligible employees, and confirmation of the wages paid to them during the period of inoperability. Further guidance is expected from the PRTD to help employers determine the inoperability date ranges. Eligible employers should also analyze the tax implications within their operational structure of claiming the HDZ Retention Credit on their US income tax returns, as compared with the Direct Payment Retention Credit to be provided by the PRTD. ——————————————
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