Search form

Puerto Rico Revises Form for Reporting Payments to Terminated Employees, Considers Credit History Ban

By Maralyssa Álvarez-Sánchez and Karla Carrillo-Russe
  • November 12, 2018

The Puerto Rico Department of the Treasury has announced changes to tax reporting for certain severance payments.

As a result of the Labor Transformation and Flexibility Act (Act 4-2017), adopted in 2017, certain limited payments made by an employer to an employee due to separation of employment are classified as “exempt income” under the Puerto Rico Internal Revenue Code. These are not taxable for purposes of Puerto Rico income tax, but the employer must report the payments to the employee and the Treasury Department on an official informative return.

For the 2017 tax year, the Treasury Department required that employers use Form 480.6D, reserved for Income Not Subject to Withholding, to report these payments. Form 480.6D will not be used for this purpose for the 2018 tax year. In Internal Revenue Informative Bulletin 18-18, issued October 30, 2018, on withholding schedules and informative returns, the Treasury Department announced changes to Form 499R-2/W-2PR (the Puerto Rico equivalent of the W-2 Form), including a new Box 16 for Exempt Salaries. According to the announcement, payments to employees because of employment termination should be reported in Box 16B with the appropriate code designation. In addition, such reports must be made by January 31, 2019. A failure to report by the deadline may result in penalties.

Employers should consult with their tax professionals to ensure proper tax reporting of payments made to employees as a result of employment termination or settlement of claims related to employment termination.

Bill to Prohibit Using Credit History in Employment Decisions

A bill seeking to prohibit employers from using credit history in employment decisions has been introduced in the Puerto Rico Senate.

If enacted, Senate Bill 1134 (SB 1134) would prohibit employers from refusing to hire, dismissing, or otherwise discriminating against an employee or applicant because of information contained in a credit report. Exceptions under SB 1134 include managerial positions, positions for which a credit report is required by law, and positions that imply a fiduciary responsibility to the employer.

However, before requesting a credit report for current or prospective employees who may be covered by an exception, the employer must notify the employee of its intention in writing.

Introduced on October 30, 2018, SB 1134 has been referred to the Government Commission for evaluation and recommendation.

Please contact Jackson Lewis with any questions about these or other developments.

©2018 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

Reproduction of this material in whole or in part is prohibited without the express prior written consent of Jackson Lewis P.C., a law firm that built its reputation on providing workplace law representation to management. Founded in 1958, the firm has grown to more than 900 attorneys in major cities nationwide serving clients across a wide range of practices and industries including government relations, healthcare and sports law. More information about Jackson Lewis can be found at www.jacksonlewis.com.

See AllRelated Articles You May Like

November 8, 2019

New Puerto Rico Law Limits Employers’ Use of Credit Reports in Employment Decisions

November 8, 2019

Puerto Rico has enacted legislation to limit the use of credit reports in making employment decisions. An “Act to Protect Employee’s Credit Information” (PR Act. No. 150 of October 8, 2019) prohibits employers from refusing to hire, dismissing, or otherwise discriminating against an employee or applicant because of the information in... Read More

September 30, 2019

District of Columbia Commuter Benefits: New Penalties, Fines

September 30, 2019

Penalties and fines for non-compliance with Washington, D.C.’s law requiring D.C. employers to offer commuter benefits to their D.C. employees will take effect beginning on November 14, 2019. The law, which became effective on January 1, 2016, requires employers with at least 20 employees in D.C. to offer commuter benefits to their... Read More

September 13, 2019

Illinois Outlaws Questions about Job Applicants’ Prior Salaries

September 13, 2019

Beginning September 29, 2019, it will be against the law in Illinois for employers to ask job applicants about their prior salaries or wage history. In order to avoid fines and lawsuits, companies recruiting in Illinois should remove any questions about prior pay from their job applications and any related documents both on-line or in... Read More

Related Practices