Puerto Ricans are U.S. citizens, but Puerto Rico has its own income tax system, run by the Departamento de Hacienda (Puerto Rico's Treasury Department, "Hacienda"). That is why most people who live and work on the island file the Hacienda return (planilla, Form 482) and do not file a federal income tax return with the IRS (the federal Internal Revenue Service).
That doesn't mean the IRS doesn't apply to you. You pay federal Social Security and Medicare, and in some situations you do have to file Form 1040. This guide explains the general rule and its exceptions, based on IRS Publication 1321 and Publication 570.
Who is a bona fide resident of Puerto Rico
The favorable rules apply to anyone who is a bona fide resident of Puerto Rico during the year. According to Publication 570, you are a bona fide resident if, during the tax year, you:
- Meet the presence test. The most common way is to be in Puerto Rico at least 183 days during the year. There are four other ways to meet it, for example, 549 days over a three-year period with at least 60 days each year, or not being in the United States more than 90 days during the year.
- Don't have your tax home outside Puerto Rico. Your tax home is generally your main place of work or business.
- Don't have a closer connection to the United States or to another country than to Puerto Rico. What counts here is where your permanent home, your family, your belongings and your bank are, where your driver's license is from and where you vote.
Hacienda has its own definition of a resident, based on domicile and a 183-day presumption. We explain it in tax residency. If you moved during the year, also see the guide to moving to or from Puerto Rico.
The main rule: Section 933
Section 933 of the federal Internal Revenue Code provides that a citizen who is a bona fide resident of Puerto Rico for the entire year doesn't pay federal income tax on income from Puerto Rico sources. There is one important exception: wages as a civilian or military employee of the U.S. government are not excluded, even if you work on the island.
That is why it is key to know where each type of income "comes from." Publication 1321 sums up the source rules:
| Type of income | Considered sourced in... |
|---|---|
| Wages and compensation | The place where the services are performed |
| Interest | The residence of the payer |
| Dividends | The location of the payer |
| Rents | The location of the property |
| Sale of real property | The location of the property |
| Federal Social Security benefits | The United States, by definition |
An example: if you work in San Juan for a local company, those wages are Puerto Rico-source income. If you have dividends from a U.S. corporation or you work a few weeks in Florida, that income is from outside Puerto Rico and the IRS does tax it.
When you have to file Form 1040
According to Publication 1321, a bona fide resident must file a 1040 if they have income from sources outside Puerto Rico or wages as a federal government employee, and that income reaches a threshold. Active-duty members of the Armed Forces who claim Puerto Rico as their legal residence are also federal employees.
The threshold is not the usual figure. Because part of your income is excluded, the standard deduction is prorated by the ratio between your income subject to federal tax and your total income from all sources, including Puerto Rico. If your income subject to federal tax is equal to or more than that adjusted deduction, you have to file. For married people filing separately, the threshold is $5.
The 2025 standard deductions used in Publication 1321 are $15,750 for single filers, $31,500 for married filing jointly and $23,625 for heads of household, with higher amounts for people 65 or older.
Ana is single, under 65 and a bona fide resident of Puerto Rico in 2025 (hypothetical amounts). She earned $30,000 in wages at a company in Ponce and received $10,000 in dividends from a U.S. corporation.
- Income subject to federal tax: $10,000 (the dividends).
- Total income from all sources: $30,000 + $10,000 = $40,000.
- Ratio: $10,000 ÷ $40,000 = 0.25.
- Adjusted standard deduction: $15,750 × 0.25 = $3,937.50.
- Because $10,000 is more than $3,937.50, Ana must file a 1040 for 2025. On that return she claims a $3,937.50 standard deduction, not $15,750.
What gets adjusted on the 1040
If you file, the 1040 includes only the income that is not excluded. Publication 1321 explains the adjustments:
- Itemized deductions. Those not tied to a specific type of income, such as medical expenses, charitable contributions, property tax and mortgage interest, are prorated using the same ratio.
- Adjustments to income. You can't deduct those related to excluded income. For example, if you exclude your Puerto Rico business income, you don't deduct half of your self-employment tax.
- Credits. Excluded income is added back to figure the income limits for certain credits. Bona fide residents can't claim the federal earned income tax credit (EITC). The child tax credit has special rules; read the child tax credit.
- Credit for taxes paid to Puerto Rico. If you pay Puerto Rico tax on income the IRS also taxes, such as federal wages, you can claim a foreign tax credit (Form 1116), reduced by the portion that relates to excluded income.
- High investment income. The 3.8% net investment income tax (NIIT) applies to a bona fide resident if their modified adjusted gross income from sources outside Puerto Rico exceeds the threshold, for example $200,000 for single filers.
The other side: Hacienda taxes your worldwide income
According to Publication 570, bona fide residents pay Puerto Rico tax on their income from all sources. That includes the U.S. dividends in the example. To keep you from paying twice, the Hacienda return lets you claim a credit for taxes paid to the United States, its states and other countries, using Anejo C Individuo (Schedule C Individual), subject to limits.
According to Hacienda's 2025 instructions, federal Social Security benefits are not taxed in Puerto Rico. For the IRS they are U.S.-source income, and part of them may be taxable if you have to file a 1040; Publication 915 explains the calculation. See pensions and retirees.
Federal returns even if you don't file a 1040
If you don't have to file a 1040, you may still need to file Form 1040-SS:
- If you are self-employed and your net earnings are $400 or more, to pay Social Security and Medicare tax. Read self-employment Social Security tax.
- If you have qualifying children, to claim the additional child tax credit.
Form 1040-PR was discontinued; since tax year 2023 you use Form 1040-SS, which is also available in Spanish. For tax year 2025, the deadline for the 1040 and the 1040-SS was April 15, 2026, with an automatic six-month extension if you filed Form 4868 on time. An extension to file doesn't extend the deadline to pay.
Frequently asked questions
Do I have to file with the IRS if I work for a federal agency in San Juan?
Probably yes. Wages of U.S. government employees are not excluded under Section 933. They are taxed by the IRS and also by Hacienda; to keep you from paying twice, the 1040 allows a credit for the tax paid to Puerto Rico on those wages.
Do I have to file if all I have is a savings account at a U.S. bank?
Interest from a U.S. bank is U.S.-source income. If it is small, you probably don't reach the adjusted threshold. Run the Publication 1321 calculation with your own numbers.
Can I claim the federal EITC if I live in Puerto Rico?
No. Publication 1321 says bona fide residents can't claim the federal earned income tax credit. Puerto Rico has its own work credit on the Hacienda return; see tax credits.
Why do I have to include my Puerto Rico income in the calculations if it is excluded?
Because the IRS uses it to prorate the standard deduction and to measure the income limits for certain credits. It isn't subject to federal tax, but it counts in those calculations.
Who can help me with a 1040 for a Puerto Rico resident?
A CPA or a tax preparer with federal experience. The IRS also offers free help through the VITA program for people with low and moderate incomes.
Sources
- IRS, "Publication 1321 (Rev. October 2025): Special Instructions for Bona Fide Residents of Puerto Rico". irs.gov
- IRS, "Publication 570 (2025): Tax Guide for Individuals With Income From U.S. Territories". irs.gov
- IRS, "Instructions for Form 1040-SS (2025)". irs.gov
- IRS, "Bona fide residents of the Commonwealth of Puerto Rico: tax credits". irs.gov
- Departamento de Hacienda, "Folleto de instrucciones: planilla de contribución sobre ingresos de individuos 2025". hacienda.pr.gov
787TAX is an independent guide. It is not Puerto Rico's Departamento de Hacienda, the CRIM or the IRS. This page is general information, not tax or legal advice. Example figures are hypothetical. Found an error? Tell us.
