Retiring does not always mean you stop filing a return. In Puerto Rico, many pensions are partly taxable, while other income retirees commonly receive, such as federal Social Security, is not taxed. This guide summarizes how the Departamento de Hacienda (Puerto Rico's Treasury Department, "Hacienda") treats pensions and retirement distributions, based on the instruction booklet for tax year 2025 (returns filed in 2026) and the 2011 Código de Rentas Internas (Internal Revenue Code of Puerto Rico).
Federal Social Security: not taxed in Puerto Rico
Hacienda's booklet is clear: if you receive federal Social Security benefits, you do not report them on Schedule H Individual (the pension schedule), because they are not taxable in Puerto Rico. Hacienda does ask, in the questionnaire on the income tax return (planilla, Form 482), whether you received excluded or exempt income, such as Social Security, and asks you to list it on Schedule IE Individual.
For that reason, many people whose only income is Social Security are not required to file. Review who must file.
Pensions: the age-based exclusion
Pensions you receive in periodic payments from a qualified plan (Section 1081.01 of the Code) or from a retirement system of the government of Puerto Rico, the federal government or their instrumentalities have an exclusion under Section 1031.02(a)(13) of the Code. According to the 2025 booklet:
| Pensioner's age | Amount excluded per pension |
|---|---|
| Under 60 | $11,000 |
| 60 or older | $15,000 |
The exclusion applies to each pension separately. If you receive two qualifying pensions, each one has its own exclusion. Anything above that amount is taxable. For the exclusion to apply, Form 480.7C must show that the distribution is paid in periodic payments, that the plan is a governmental or qualified private plan and a distribution code of A, B or C.
Cost of the pension. If you contributed to your plan with money that had already been taxed, that part is your "cost" and is not taxed again. While you recover that cost, Schedule H Individual calculates the taxable part each year using a rule based on 3% of the pension's cost, until you recover it completely. The cost usually appears in box 3 of Form 480.7C.
Bonuses for government pensioners. The Christmas bonus (aguinaldo), the summer bonus and the medication bonus that certain pensioners of the government retirement systems, the Judiciary, the University of Puerto Rico and the teachers' system receive are reported as exempt income on Schedule IE Individual.
Gloria is 66, single and receives $24,000 a year from a government retirement system pension (she has already recovered her cost) and $14,000 in Social Security. Her exclusion is $15,000, so $9,000 of the pension is taxable. Social Security does not count. Her net taxable income is $9,000 − $3,500 personal exemption = $5,500, which falls in the 0% bracket of the tax rate table. She owes no tax, but because her taxable income is more than her exemption, as a general rule she must file.
Military pensions: fully exempt since 2025
One of the changes for tax year 2025 is a full exemption from tax on the military pensions of veterans and retired members of the U.S. Armed Forces who are residents of Puerto Rico. According to the booklet, to claim it you must:
- be a veteran under Act 203-2007 (Ley 203-2007) and a retired member of the Armed Forces;
- be a resident of Puerto Rico; and
- submit copies of Forms 1099-R and DD-214 with your return, and indicate it in the Schedule H Individual questionnaire.
Remember that veterans also have an additional personal exemption of $1,500.
Distributions from retirement plans and IRAs
When you take money out of a retirement plan all at once, the rules change.
Lump-sum distribution because of separation from employment. If you receive your entire balance in a qualified plan within a single tax year because you separated from your job or because the plan was terminated, the taxable part may be taxed at a special rate of 20%, or 10% in the cases set out in Section 1081.01(b) of the Code. It is reported on Schedule D Individual. According to the 2025 booklet, distributions taxed at 10% under that section are not subject to the alternate basic tax. Schedule D also asks whether the distribution comes from a federal Thrift Savings Plan.
Distributions from government plans. Lump-sum distributions from government plans, in excess of your contributions, are subject to 10% withholding, which is reported on Form 480.7C.
Puerto Rico IRAs. Distributions from an Individual Retirement Account are reported on Form 480.7, and the 10% withholding on the Puerto Rico-source part is credited on your return. Withdrawing early or outside the plan's rules may have additional consequences. Before you do it, check with the institution and your tax professional.
Withholding. Form 480.7C also reports withholding on periodic pension payments, if any (see withholding and forms). That withholding is credited on Schedule B Individual as a payment toward your tax.
Retirement distribution calculations can be complex, especially if they combine pre-tax and after-tax contributions, Puerto Rico and U.S. plans, or transfers between plans. If you are about to receive a large distribution, talk to a CPA before deciding how to receive it.
Credits for people 65 or older and for pensioners
According to Circular Letter (Carta Circular) of Internal Revenue No. 26-12, there are two refundable credits that you request with Form 481.1, not with the regular return:
- Credit for people 65 or older: $200 if your gross income, including excluded items, is not more than $15,000 ($30,000 combined if you are married; each spouse can claim it). It may increase to $400 if a General Fund revenue test set in the Code is met.
- Compensatory credit for low-income pensioners: $300 if your only source of income is your pension from a retirement system of the government, the Judiciary, the teachers' system, the UPR, the Electric Power Authority or the private sector, and it is not more than $4,800 a year.
For tax year 2025, Form 481.1 is filed only electronically in SURI (Hacienda's online system) or through a return preparer, from July 2 through Wednesday, October 14, 2026. According to Hacienda, Social Security beneficiaries must submit Form SSA-1099 to certify their income.
You cannot receive these credits if you claimed the earned income credit (Crédito por Trabajo) on your return for the same year. According to Hacienda, pensions count as earned income for the earned income credit, so if you receive a pension and your income is below the limit, compare which one is better for you. See tax credits.
Other useful rules for retirees
- Mortgage interest with no income limit. The $35,000 limit and the 30%-of-income limit on the mortgage interest deduction do not apply if you or your spouse are 65 or older at the end of the year (Section 1033.15 of the Code).
- IRAs after 75. The deduction for IRA contributions is not allowed if you are 75 or older, or if your income comes from a pension or annuity.
- Dependents 65 or older. A person 65 or older for whom you provide more than half of their support can be your dependent if they meet the income limit.
More details in deductions and exemptions. If you are moving to Puerto Rico when you retire, read tax residency and moving to or from Puerto Rico.
Frequently asked questions
Do I have to file if I only receive a pension and Social Security?
It depends on the taxable part of your pension. Subtract the $11,000 or $15,000 exclusion from your pension and compare the result with your personal exemption ($3,500 if you are an individual taxpayer, $7,000 if you are married filing jointly). If more is left over, as a general rule you must file. Social Security is not added in.
I receive two pensions. Do I get two exclusions?
Yes. According to Hacienda's booklet, if you receive more than one qualifying pension, the exclusion applies to each one separately. You complete one Schedule H Individual for each pension. The filing steps are in how to file your return.
My pension is from a U.S. plan. Does the exclusion apply?
The exclusion applies to pensions from plans qualified under Section 1081.01 of the Code and from retirement systems of the government of Puerto Rico, the federal government or their instrumentalities. For private U.S. plans, the answer depends on how the plan is qualified. Ask the plan administrator and a tax professional.
Do I request the $200 credit for people 65 or older on my return?
No. You request it with Form 481.1, in SURI or through a return preparer. For 2025, the deadline is October 14, 2026.
Sources
- Departamento de Hacienda, "Folleto de Instrucciones, Planilla de Contribución sobre Ingresos de Individuos 2025" (rev. 27 de febrero de 2026). hacienda.pr.gov
- Departamento de Hacienda, "Carta Circular de Rentas Internas Núm. 26-12: Formulario 481.1 para el año contributivo 2025". hacienda.pr.gov
- Departamento de Hacienda, "Crédito por Trabajo (Earned Income Tax Credit o EITC)". hacienda.pr.gov
- Oficina de Gerencia y Presupuesto, "Puerto Rico Internal Revenue Code of 2011, as amended", compilación rev. 18 de junio de 2026, Secciones 1031.02 y 1033.15. bvirtualogp.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.
