Technical article

US Tax for a Mainland Retiree in Puerto Rico

The short answer from the official pages is that it depends on where each dollar of income comes from.

By Neil Solomon · 6 min read

Picture a couple named Dan and Carol. Both are 66. They live in Ohio and get Social Security, a company pension and some dividends. A friend told them that Puerto Rico "has no federal tax." They wonder if that is true, and what they would owe if they moved.

The short answer from the official pages is that it depends on where each dollar of income comes from. Puerto Rico is a US territory, so federal law still applies. It also has special rules and its own tax code. I read both sides.

What stays federal

A US citizen is still a US citizen on the island. Social Security, Medicare and the IRS all reach Puerto Rico.

The IRS says Publication 570 "discusses how to treat income received from the following U.S. territories on your tax return(s)," and Puerto Rico is one of them. The key idea is the "bona fide resident." Section 933 of the tax code says a person who is a bona fide resident of Puerto Rico for the whole year does not include "income derived from sources within Puerto Rico" in US gross income. It makes an exception for pay as a US government employee.

The word "sources" matters. Income that comes from Puerto Rico is covered. Income that comes from the mainland is not.

Who counts as a bona fide resident

Publication 570 lists three tests: presence, tax home and closer connection. This is my paraphrase of what the page says.

• Presence. Meeting any one of several counts is enough. One is 183 days in Puerto Rico in the year. Others include 549 days over three years with at least 60 in each year, or no more than 90 days in the mainland.
• Tax home. No tax home outside Puerto Rico.
• Closer connection. No closer connection to the mainland or another country than to Puerto Rico. The page points to things like where the home, family, bank and driver's license are.

Where the money comes from

Publication 1321 also says a bona fide resident with US-source income or US government pay "must file a U.S. Federal income tax return" on Form 1040 or 1040-SR, once income reaches the filing level. So Dan and Carol would still file with the IRS if they kept Social Security and a mainland pension. Self-employed people generally owe US self-employment tax. Form 8898 may be due in the year someone becomes or stops being a bona fide resident, if worldwide gross income is over US$75,000.

What Puerto Rico charges

The Puerto Rico Treasury (Hacienda) 2025 table for residents:

The same page gave the deadline for the 2025 return as 15 April 2026. It also names a full exemption for military pensions.

Social Security and health care

Two other federal programs work a little differently on the island. The Social Security Administration says Part B of Medicare is not automatic: "You will not automatically receive Medicare medical insurance (Part B)," and the monthly premium rises 10% for each 12-month period someone could have signed up and did not. A 2025 Social Security Advisory Board statement says Puerto Rico is outside Supplemental Security Income and has a block grant instead. It also lists the Part D low-income subsidy as not available there. Those two lines are paraphrase.

What the Puerto Rico Code says about Social Security and pensions

I read the Puerto Rico Internal Revenue Code of 2011 on the Hacienda site (the English version, revised 27 September 2024) on 11 October 2026. Section 1031.02(a)(7) excludes federal old-age and survivors Social Security benefits from gross income, so a resident does not include them on the island return. Section 1031.02(a)(13) excludes pensions and annuities from the Puerto Rico retirement systems, from the United States government and its subdivisions, and from qualified private-employer plans, up to US$15,000 a year for a pensioner who is 60 or older on the last day of the year and US$11,000 otherwise. The exclusion applies to periodic or lifetime payments made after the employment ends. My arithmetic: a retiree of 66 with a US$30,000 mainland company pension would leave the first US$15,000 out and carry the other US$15,000 into the Puerto Rico tax table above. A federal return can still be due, as the IRS pages above say.

Medicare Part B in 2026

The Centers for Medicare & Medicaid Services set the standard Part B premium for 2026 at US$202.90 a month, with a deductible of US$283 a year (fact sheet read 11 October 2026). The 10% late-enrolment rise per 12-month period quoted above is on top of that premium.

What this article leaves for another day

• How the island treats distributions from mainland retirement accounts such as an IRA or a 401(k) when they are lump sums rather than periodic payments. The Code's pension exclusion is written for periodic payments, and a Puerto Rico accountant can say which rule fits your account.
• The Publication 570 chapter on special Puerto Rico rules; the Hacienda Code above is the island's own text.
• The official US Code site; I cite section 933 through the IRS page.