Do residents of Puerto Rico pay US income taxes?
Full-year residents of Puerto Rico who receive income solely from what the IRS classifies as “Puerto Rico source income” do not pay federal income taxes to the Internal Revenue Service on such income. That income is subject to taxation in Puerto Rico, payable to the Commonwealth government. (Before you get any ideas, PR income taxes are usually higher than the equivalent IRS taxes, and many more people in Puerto Rico pay income taxes based on the island’s tax code than if the IRS tax code were applied.) By mutual agreement with the US Congress, Puerto Rico is classified as an “independent taxation authority.” For more information, see IRS Topic 901 on the agency’s web site. Puerto Rico residents do pay Social Security and Medicare taxes, and corporations are also subject to IRS tax rules.
