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Your TSP withdrawal may be subject to Federal income taxes. The tax treatment of your withdrawal depends on the type of balance (traditional (non-Roth), Roth, or both) from which your withdrawal is taken as well as the type of withdrawal option(s) that you choose. If you had a traditional then you would have to pay taxes if it was a Roth then you would not as you already paid taxes. If so, yes you would have to declare it on your income taxes.
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"All pension plans covered by ERISA, including dual-qualified plans, are required to file a Form 5500-series return. Plans that are qualified in Puerto Rico and not in the U.S. should include on line 8 the plan characteristic code 3C - Plan not intended to be qualified under Internal Revenue Code Sections 401, 403 or 408. Enter 3J for U.S.-based plans that cover Puerto Rican residents and are qualified under both the Internal Revenue and Puerto Rico Codes.
All plans that have participants in Puerto Rico must file Form 480.70 with the Hacienda." See IRS link: https://www.irs.gov/retirement-plans/ep-examination-process-guide-section-10-puerto-rico-compliance-puerto-rico-facts
In general, the two codes (Puerto Rico and US) apply to income generated in their respective states. However, both Puerto Rico and the US tax the global income of their residents. This means that Puerto Rico residents with US source income and US residents with Puerto Rico source income will be double taxed on that income. Fortunately, both allow a tax credit for taxes paid to the source on such income: the US for Puerto Rico source income, and Puerto Rico for US source income. This credit is calculated on Form 1116 for a US tax return, and Schedule C for a Puerto Rico return. So you would file the US income (if you are a resident of Puerto Rico as normal income and then get a tax credit in Schedule C of US income from the TSP) on your Puerto Rico tax return.
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