EMPLOYEE RETENTION BENEFIT

For employers affected by hurricanes Irma

and María

Puerto Rico Treasury Department

Rev. June 19, 2018

Agenda

1

Requirements to qualify for the benefit

Eligible Employee

Eligible Employer

Inoperable Business

Resumed Significant Operations

Qualified Wages

2

3

4

5

6

7

8

9

Benefit Amount

Benefit Application

Benefit Payment

Benefit Amount

In the US and USVI, the benefit is a credit equal to 40% of the first

$6,000 of Qualified Wages paid to each Eligible Employee.

The US Code provides that if a taxpayer does not claim the credit in

the current taxable year, the credit can be carryback for one-year and

forward for 20 years.

This credit was enacted in P.L.115-63, known as the "Disaster Tax

Relief and Airport and Airway Extension Act of 2017" of September 29,

2017.

Benefit Amount

Benefit Amount

The US Treasury determined the benefit applicable to Puerto Rico

taxpayers after an amended to the benefit introduced by Section 20201(b)

of the Bipartisan Budget Act of 2018, which provides that the credit will be

subject to the provisions of Section 280C(a) of the US Code.

Section 280C(a) of the US Code provides that no deduction shall be

allowed for that portion of the wages or salaries incurred for the taxable

year that equals the credit for the taxable year.

For resident employers of Puerto Rico, the US Treasury authorized that the

net benefit of the credit be distributed as a refundable credit in 2017.

Benefit Amount

According to the US Treasury, the net benefit of the

credit is 26% or 32% of the first $6,000 of Qualified

Salaries paid by the Eligible Employer to each Eligible

Employee.

The applicable percentage will be determined based on

the net income subject to normal tax of the Eligible

Employer.

Benefit Amount

In Puerto Rico

Taxable Year 2017

Net Income Subject to Normal TaxApplicable Percentage

$10,000,001 or more 26%

$10,000,00 or less 32%

Benefit Amount

For purposes of the Puerto Rico income tax return:

• The benefit does not affect the right to claim a deduction

for wages paid.

• The benefit is not considered taxable income.

In the case of controlled groups, each member of the group

will compute separately the amount of the benefit. The

Qualified Wages used by a member of the controlled group

cannot be used by any other member.

A branch of a US corporation or any other jurisdiction, is eligible

for the benefit for the Qualified Salaries paid to its Eligible

Employees in Puerto Rico. However, in the case of US

corporations, the entity cannot:

• Claim the Employee Retention Tax Credit available in the US

• Claim the work opportunity credit under Code Sec. 51 of the

US IRC.

Benefit Amount

Eligible Employer

An eligible employer is an employer:

• Who conducted an active trade or business in Puerto Rico

on September 16, 2017 (September 4, 2017 in case of

Hurricane Irma)

• Whose trade or business became inoperable, on any day

after said date and before January 1, 2018

• Continued to pay or accrue wages to the employees during

the period the business was inoperable

Who is an

Eligible Employer?

Eligible Employer includes:

• Flow through entities

• Corporations

• Any self employed individual taxpayer who hires employees

to carry its business

Exempted entities (such as non-for profit under Section 1101.01

of the PR Code) are not considered Eligible Employers under

the Act.

Who is an

Eligible Employer?

Requirements to qualify for

The Benefit

The eligible employer must have filed the following forms:

• All the required 499R-2/W-2 PR

• The Employer’s Quarterly Federal Employment Tax Returns (Form

941PR) for the Tax Year 2017

• PR Employer’s Quarterly Unemployment & Disability Insurance Tax

Report (Form PRSD-10) for the taxable year 2017

• The PR Employer’s Quarterly Returns of Income Tax Withheld at

Source (Form 499R-1 A) for the taxable year 2017

The employer must be registered in the Merchant Registry of the

Puerto Rico Treasury Department

** If the employer has not filed the forms mentioned above, the same should be filed prior to claiming the

Benefit.

Requirements to qualify for the benefit

Eligible Employee

Hurricane María – an eligible employee is an employee of an

eligible employer whose principal place of employment on

September 16, 2017 was in Puerto Rico.

Hurricane Irma – in this case, the principal place of employment

of the employee on September 4, 2017 must has been in the

following municipalities: Canóvanas, Cataño, Culebra, Dorado,

Fajardo, Loíza, Luquillo, Toa Baja, Vega Baja and Vieques.

Employees hired after these dates will not be considered Eligible

Employees.

Who is an

Elegible Employee?

The term “Eligible Employee” excludes relatives hired by:

• An individual who is self-employed.

• The owner of a corporation or partnership:

• Owner of the corporation is the shareholder who owns,

directly or indirectly, more than 50% in value of its

outstanding stocks.

• Owner of the partnership is the partner who owns, directly or

indirectly, 51% or more of the partnership interest.

Who is an

Elegible Employee?

Eligible Employee

Example of Hired Relatives who are

NOT considered Eligible Employees

Son

-

Daughter

Brother

-

Sister

Father

-

Mother

Stepfather

-

Stepmother

Nephew

-

Niece

Uncle

-

Aunt

Son-in-law

-

Daughter-in-

Law

Father-in-law

-

Mother-in-law

.

Qualified Wages

Qualified wages are those wages paid or incurred

during the period beginning on the date on which the

trade or business first became inoperable at the

employee’s principal place of employment.

What are

Qualified Wages?

Hurricane Irma – after September 4, 2017

Hurricane María – after September 16, 2017

The period ends on the date on which the trade or business has

resumed Significant Operations at such principal place of

employment before January 1, 2018.

Eligible Period

for the Qualified Wages

The amount of Qualified Wages the employer can

take into account with respect to an employee is up

to $6,000 per Eligible Employee.

What are

Qualified Wages?

Qualified Wages for purposes of the Benefit are payments

that qualify as wages for purposes of the Federal

Unemployment Tax Act (FUTA) and the Puerto Rico

Unemployment Security Act.

It includes the following:

• Commissions

• Bonuses

• The cash value of remuneration paid in any medium other

tan cash.

Qualified Wages

• Late payment under any local or federal act

• Vacation and sick leave payments

• Any amount paid or incurred for medical or

hospitalization expenses in connection with sickness or

accident disability

Qualified Wages

• Wages paid without regard to whether the employee

performs any services or performs services at a different

place of employment than the principal place of

employments

• Accrued or paid wages for services performed by an

Eligible Employee at his principal place of employment,

after the impact of the hurricane but before significant

operations have resumed.

Qualified Wages

Wages paid by a third-party payer (including an employee

leasing company, a professional employer organization, or a

Certified Professional Employer Organization) to Eligible

Employees of an Eligible Employer are considered Qualified

Wages incurred by the Eligible Employer.

Only the Eligible Employer, and not the third-party payer,

can take into account such Qualified Wages in claiming the

Benefit.

Qualified Wages

If the principal business was rendered inoperable by

Hurricane María, the opening at the new location is not

treated as the resumption of operations at the employee’s

principal place of employment. Thus, the employee’s wage

payments made through December 31, 2017, are eligible for

the Benefit, because the business never resumed operations

at the employee’s work place.

Qualified Wages exclude any pay for disaster assistance.

Qualified Wages

Inoperable Business

A business becomes inoperable when the trade or business of an

employer could not be carried out as a result of the hurricanes for

one or more of the following reasons:

• Structural damages to the business

• The business is physically inaccessible to employees or

customers

• The business could not receive raw materials or inventories

• Lack of utilities, such as electricity, water or communication

access, etc.

Inoperable Business

Can the employer claim the benefit if he eventually decides to close the

business? Yes

Example:

An employer owned a commercial establishment located in an area impacted

by Hurricane Maria. The establishment was rendered inoperable by the

disaster. The employer continued to pay wages to its employees. However

on November 15, 2017, decided not to rehabilitate the building in which the

business was located; and permanently laid off the employees as of

November 30, 2017. The employer paid salaries to its employees through

November 30, 2017.

In this case, the employer can claim the benefit with respect to all wages paid

from September 17 to November 30, 2018, up to $6,000 per eligible

employee.

Inoperable Business

Resumed Significant Operations

Each employer should make a reasonable and good faith

interpretation of what significant means in relation to its

particular business.

The Significant Operations test applies to each principal place

of employment. Thus, it applies separately to each place of

employment.

Resumed

Significant Operations

The following circumstances can be used as guidelines to

determine whether a business has not resumed Significant

Operations.

• If operations are unstable

• Lack of raw materials or inventory

• Instability of the utilities or communications services

• The business has not reached at least 80% of its

activities

Resumed

Significant Operations

Benefit Application

The benefit can only be claimed through a new platform

created on the electronic system of PRTD’s Internet page

Prior to claiming the Benefit, the Eligible Employer must

confirm that Forms for the taxable year 2017 have been

duly filed.

The platform to claim the benefit will be available until

December 31, 2018.

Benefit Claim

The platform is available on the same electronic

system employers use to file the Employer’s

Quarterly Returns of Income Tax Withheld (Form

499 R-1B) with the Puerto Rico Treasury

Department

Benefit Claim

Required information

to claim the benefit:

Merchant Registry

Number of the main

location

01. Date on which the business

resumed Significant

Operations*

Date on which the

business became

inoperable

02.

Name of each Eligible

Employees (Name,

Middle Initial,

Surnames)

04.

03.

Social Security

Number of each

Employee

05. Total of Qualified Salaries paid

or accrued per Eligible

Employee during the period the

business was inoperable

06.

*If the date is after December 31, 2017, the date that will be provided is December 31, 2017.

Electronic

Platform

Click Here

Electronic

Platform

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Electronic

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Benefit Payment

The Benefit will be paid only by means of direct deposits to

the bank account indicated at the time of claiming the Benefit.

PRTD will pay the benefit two weeks after the employer

completes the claim, only if the Federal Treasure has

transferred the funds to our agency and the funds are

available to proceed with the payment.

Benefit

Payment

Additional

Information

For additional information related to the Benefit,

you can send an email to:

beneficioretencionempleos@hacienda.pr.gov

You can also call us at:

(787) 622-0123 (option 8)

Questions and Answers

Thank You

for Your Time

and Company