Taxation in Puerto Rico consists of taxes paid to the United States federal government and taxes paid to the Government of the Commonwealth of Puerto Rico. Payment of taxes to the federal government, both personal and corporate, is done through the federal Internal Revenue Service (IRS), while payment of taxes to the Commonwealth government is done through the Puerto Rico Department of Treasury ().

Puerto Rico is an unincorporated territory of the United States and Puerto Ricans are U.S. citizens; however, Puerto Rico is not a U.S. state, but a U.S. insular area. Consequently, while all Puerto Rico residents pay federal taxes, many residents are not required to pay federal income taxes. Aside from income tax, U.S. federal taxes include customs taxes,The Islands: Puerto Rico Overview. US Government. Department of the Interior. Office of Insular Affairs. Accessed 29 October 2020. federal commodity taxes, and federal payroll taxes (Social Security, Medicare, and Unemployment taxes).

Not all Puerto Rican employees and corporations pay federal income taxes. Federal law requires payment of federal income tax from the following residents and corporations only: federal government employees in Puerto Rico,US v. Vaello-Madero, Docket No. 19-1390 (April 10, 2020). U.S. Court of Appeals for the First Circuit. Boston, Mass. p.27. fn.17. 10 April 2020. residents who are members of the United States military, those with income sources outside of Puerto Rico, those individuals or corporations who do business with the federal government, and those Puerto Rico-based corporations that intend to send funds to the United States.

Federal taxes Residents of Puerto Rico are required to pay most types of federal taxes. Specifically, residents of Puerto Rico pay customs taxes,The Islands: Puerto Rico. US Department of the Interior, Office of Insular Affairs. Archived on 4 November 2009.Puerto Rico. Stanford.wellsphere.com 7 September 2008. Archived on 1 April 2010. Federal commodity taxes, and all payroll taxes (also known as FICA taxes, which include (a) Social Security,Topic No. 903 U.S. Employment Tax in Puerto Rico. IRS. Accessed 28 October 2020. (b) Medicare,Reuters.com Puerto Rico hopes to gain from U.S. healthcare reform. Reuters. 24 September 2009. Accessed 28 October 2020. and Unemployment taxes). Puerto Ricans on the island paid over $4 billion in federal taxes in fiscal year 2021.

Federal income taxes Puerto Ricans earning income from Puerto Rican sources generally do not have to pay federal income taxes. However, residents falling within the following categories must pay tax on their income to the United States federal government, via the Internal Revenue Service:

Puerto Rico residents who: work for the federal government such as US Post Office employees, and federal agents of any of the federal executive and judicial branches located in Puerto Rico Robert A. Book. WebMemo #2338. 11 March 2009. 10 February 2010. Robert A. Book. Heritage.com 11 March 2009. Accessed 28 October 2020. do business with the federal governmentMCVPR.com Archived 16 January 2010. are members of the U.S. military earned income from sources outside Puerto RicoAn Overview of the Special Tax Rules Related to Puerto Rico and an Analysis of the Tax and Economic Policy Implications of Recent Legislative Options. Joint Committee on Taxation. US Congress. 23 June 2006. Accessed 14 August 2010. pp. 14-15. Archived on 3 December 2010. and Puerto Rico-based corporations that intend to send funds to the U.S.An Overview of the Special Tax Rules Related to Puerto Rico and an Analysis of the Tax and Economic Policy Implications of Recent Legislative Options. Joint Committee on Taxation. US Congress. 23 June 2006. Accessed 14 August 2010. p. 9, line 1. Archived on 3 December 2010.

However, notwithstanding these requirements, some residents of Puerto Rico are not required to file federal income tax returns because their income falls below the poverty threshold. As of 2019, the median income of Puerto Rico was $20,166, which falls below the poverty threshold of $24,400.QuickFacts Puerto Rico. Accessed 9 November 2020.Publication 17 (2019), Your Federal Income Tax For Individuals (For use in preparing 2019 Returns). IRS. 2020. Accessed 9 November 2020. The IRS does not require individuals or households below the poverty threshold to pay federal income tax.

From 1998 up until 2006, Puerto Rico consistently contributed more than $4 billion annually in federal taxes and impositions.US v. Vaello-Madero, Docket No. 19-1390 (10 April 2020). U.S Federal Court of Appeals for the First Circuit. Boston, Mass. pp. 26-27. 10 April 2020. Accessed 12 November 2020.See also Internal Revenue Service, SOI Tax Stats - Gross Collections, by Type of Tax and State - IRS Data Book Table 5, available at https://www.irs.gov/statistics/ soi-tax-stats-gross-collections-by-type-of-tax-and-state-irs-data-book-table-5 (last visited 9 April 2020). The average taxes paid by Puerto Ricansincluding not just federal income taxes, but other federal and non-federal taxes as wellin 2002 was $3,071 per capita, which was lower than in the states, where the average taxes paid was $9,426. This represented 28% of personal income, compared to 30% in the states.

As the cutoff point for income taxation in Puerto Rico is lower than that imposed by the U.S. IRS code and because the per-capita income in Puerto Rico is much lower than the average per-capita income of the US states, more Puerto Rico residents pay income taxes to the local taxation authority than if the IRS code were applied to the island.

The Puerto Rican government has a wider set of fiscal responsibilities than US State and local governments.Puerto Rico: Fiscal Relations with the Federal Government and Economic Trends during the Phaseout of the Possessions Tax Credit. US Government. General Accounting Office. Report Number GAO-06-541. 19 May 2006. Publicly Released: 23 June 2006. Accessed 28 October 2020. As a result, the Commonwealth government imposes a higher income tax to make up for revenue funds that would otherwise be available through state-like funding resulting from federal income tax.

Only certain residents of Puerto Rico are required to file federal income tax returns. According to the Internal Revenue Service:

Other US Federal taxes While the Commonwealth government has its own tax laws, Puerto Rico residents are also required to pay US federal taxes,Puerto Rico. Stanford.wellsphere.com. Accessed 14 August 2010. Archived 1 April 2010.Topic 903 – Federal Employment Tax in Puerto Rico IRS.gov. 18 December 2009. Accessed 14 August 2010.Puerto Rico hopes to gain from U.S. healthcare reform. Reuters. 24 September 2009. Accessed 14 August 2010. Robert A. Brook. The Heritage Foundation. 11 March 2009. Accessed 16 October 2010.Federal and Local Incentives: Where we are, Where We Want to be. Amaya Iraolagoitia. McConnell-Valdez. Puerto Rico Manufacturers Association Tax Committee. Puerto Rico Manufacturer's Association CEO Summit. Accessed 14 August 2010. Archived 16 January 2010.An Overview of the Special Tax Rules Related to Puerto Rico and an Analysis of the Tax and Economic Policy Implications of Recent Legislative Options. Joint Committee on Taxation. US Congress. 23 June 2006. Accessed 14 August 2010. Archived 3 December 2010. but most residents do not have to pay the federal personal income tax.Puerto Rico Powerball Win Draws Offensive Tweets. NBCnews.com. Accessed 14 April 2015.

Employers in Puerto Rico are subject to both Federal Insurance Contributions Act (FICA) tax (a payroll withholding tax, which funds Social Security and Medicare) and the Federal Unemployment Tax Act (FUTA). Employers in Puerto Rico must withhold the employee portion of FICA taxes from their employees' wages and contribute the employer portion of FICA."Topic 903 - Federal Employment Tax in Puerto Rico ," Internal Revenue Service.

In 2016, Puerto Rico paid close to into the US Treasury in the form of Business Income Taxes, Individual income tax withheld and FICA tax, Individual income tax payments and SECA tax, Unemployment insurance tax, Estate and trust income tax, Estate tax, Gift tax and Excise taxes.Table 5. Internal Revenue Gross Collections, by Type of Tax and State, Fiscal year 2016.xls IRS.gov Accessed 10 November 2020.

Social Security and Supplemental Security Income (SSI) benefits In general, "many federal social welfare programs have been extended to Puerto Ric[o] residents, but usually with caps inferior to those allocated to the states."Sanford Levinson and Bartholomew H. Sparrow. The Louisiana Purchase and American Expansion: 1803-1898. New York: Rowman and Littlefield Publishers. 2005. Page 167.

Residents of Puerto Rico who have paid into Social Security are eligible for benefits upon retirement. Residents of Puerto Rico who have paid into Social Security however are excluded from receiving Supplemental Security Income (SSI) benefits would they otherwise qualify. Commonwealth of Puerto Rico residents, unlike residents of the Commonwealth of the Northern Mariana Islands and residents of the 50 States, currently do not qualify for SSI. (SSI benefits are generally for low-income, disabled, as well as for elderly.) On 10 April 2020, the U.S. Court of Appeals for the First Circuit ruled that residents of Puerto Rico were eligible for SSI benefits, finding that residents of Puerto Rico make substantial contributions to the federal treasury in higher amounts than taxpayers in at least six states and the territory of the Northern Mariana Islands.US v. Vaello-Madero, Docket No. 19-1390 (April 10, 2020). United States Court of Appeals for the First Circuit. 10 April 2020. Accessed 10 November 2020. The decision was appealed and the US Supreme Court overturned the 1st Circuit Court of Appeals on 21 April 2022, denying SSI benefits eligibility to residents of Puerto Rico.United States v. Vaello Madero, 596 U.S. 159 (2022)

Medicaid and Medicare benefits Puerto Rico receives less than 15% of the Medicaid funding it would receive were it a state and Medicare providers receive less-than-full state-like reimbursements for services rendered to beneficiaries in Puerto Rico even though the latter paid fully into the system.Island Parity: Puerto Rico needs full payments from federal programs. Jaime Plá Cortés, president, Puerto Rico Hospital Association. Modern Healthcare magazine. 6 July 2009. p. 252. Reprinted by Puerto Rico Federal Affairs Administration (1100 17th St. NW, Suite 800; Washington, DC 20036). Accessed 11 May 2011. Archived 11 May 2011.

Commonwealth taxes