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Christopher B, Esq.
Christopher B, Esq., Tax Attorney
Category: Tax
Satisfied Customers: 2677
Experience:  associate attorney
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I am a federal employee retired last year. As part of my

Customer Question

Hi! I am a federal employee retired last year. As part of my retirement income I received a partial distribution in a lump sum of my TSP. They withheld me federal income taxes but nothing of Puerto Rico income taxes. Do I have to declare this income in the Puerto Rico income tax return?
JA: The Accountant will know how to help. Is there anything else important you think the Accountant should know?
Customer: Well it was a partial but significant amount ($80,000) which I understand it will place me in a High Tax Bracket and there is where I am confused.
Submitted: 2 months ago.
Category: Tax
Expert:  Christopher B, Esq. replied 2 months ago.

My name is ***** ***** I will be helping you today. Thank you for your question and for using justanswer.com.

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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Customer: replied 2 months ago.
My question is that if I am a bonafide resident of Puerto Rico and I have to declare a Puerto Rico tax return how I am suppose to tax that type of income in Puerto Rico.
Expert:  Christopher B, Esq. replied 2 months ago.

"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

Customer: replied 2 months ago.
I still do not have a response of mu question. As indicated I am a retire federal employee. One of my retirement income is the Thrift Saving Plan (TSP). From that TSP I retired a significant part (but not the total) of the amount saved in my TSP. I am aware that I have to declare that income in my IRS tax return. My question is how it is taxable in my Puerto Rico Tax Return.
Expert:  Christopher B, Esq. replied 2 months ago.

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.

Expert:  Christopher B, Esq. replied 2 months ago.

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