June 26, 2018 Puerto Rico Department of Treasury finalizes guidance and process for claiming employee retention benefit related to Hurricanes Irma and Maria Puerto Rico's Treasury Department (PRTD) has finalized guidance (Circular Letter (CL) 18-11) and established a website for employers to claim a benefit for retaining employees in the wake of Hurricanes Irma and Maria. The guidance follows an agreement between US Treasury and PRTD officials under the Federal Disaster Tax Relief and Airport and Airway Extension Act of 2017 (the Act), which was signed into law on September 29, 2017. (For more information on the Act, see Tax Alert 2018-0585.) Eligibility Eligible employers are those that operated an active trade or business in one or more of the following municipalities before the hurricanes: Irma: Canóvanas, Cataño, Culebra, Dorado, Fajardo, Loíza, Luquillo, Toa Baja, Vega Baja, and Vieques. Maria: ALL 78 municipalities are considered eligible. Additionally, employers must meet all of the following requirements: — Operated a business at the time Hurricanes Irma and Maria impacted Puerto Rico — Had employees on the payroll at the time of the hurricanes — Had a business made inoperable by the hurricanes — Paid qualified salaries to employees during the eligibility period (i.e., the period beginning after September 4, 2017, for Hurricane Irma and after September 16, 2017, for Hurricane Maria and ending on the date the business resumed significant operations again or December 31, 2017, whichever occurred first) — Filed electronically all: (1) Forms 499R-2/W-2PR, Withholding Vouchers; (2) Forms 499R-1B, Quarterly Employer Withholding Income Tax Returns; (3) Forms PR-SD-10, Quarterly Unemployment and Disability Insurance Tax Statement; and (4) Forms 941-PR, Quarterly Federal Employer Returns — Registered in the sales and use tax (SUT) Merchant Registry Benefit amount While the guidance follows many of the same terms as set forth in the Act, there are several key differences: — The benefit provided by Puerto Rico will be granted in the form of a cash deposit payment by the PRTD to the employers' bank account. — While the maximum US credit is $2,400 (40% of qualified wages), Puerto Rico's benefit varies depending on the employer's 2017 taxable income: 1. 2017 Puerto Rico taxable income > $10 million — 26% of qualified wages — While employers claiming the credit on their US federal return must reduce their deduction for salaries and wages by the amount of the credit, employers that obtain the Puerto Rico benefit may still claim the full deduction for salaries and wages. The Puerto Rico benefit will not be considered taxable income. In addition, only for-profit entities are eligible for the benefit. Process for claiming the benefit Eligible employers wishing to claim the benefit must do so online through the PRTD's website. The portal for claiming the benefit will be available until December 31, 2018. Before requesting the benefit, employers should make sure that the information included in the request agrees with the information filed on Forms PR-SD-10 and Forms 499R-2/W-2PR for 2017. The PRTD issued a guide in the form of questions and answers to provide more details on the benefit. According to the guide, employers must provide the following information to claim the benefit: — The SUT merchant's registration number — The date on which the business became inoperable — The date on which the business resumed significant operations (or December 31, 2017, if significant operations did not resume before year end) — The complete name and social security number of each eligible employee — The total amount of qualified wages paid to eligible employees during the period in which the business was inoperable The PRTD will directly deposit the benefit payment into the bank account selected by the employer. The PRTD will make the payment, provided the Federal Treasury has the funds available for the payment. Implications The availability of the benefit represents much-needed relief for eligible employers in Puerto Rico that were impacted by Hurricanes Irma and Maria. In order to claim the benefit, employers should: — Mind the December 31 deadline to apply for the benefit — Check that they have properly filed Forms 499R-2/W-2PR, 941-PR, PR-SD-10, and 499 R-1B — Check that they have properly identified all qualifying locations and employees, determined the correct days of inoperability for each location, and calculated the correct amount of qualified wages (once an application is submitted it cannot be retracted and submitted again) — Take into account that no paper form submissions will be processed — Estimate the tax year 2017 taxable income if the return was extended and not filed yet at the time of requesting the benefit (excess benefits must be returned if estimate was not accurate) Eligible employers operating as branches of a US parent company should analyze the tax implications within their operational structure of claiming the federal tax credit on their US income tax returns as compared to the Puerto Rico cash benefit. ———————————————
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