Do You Still Owe U.S. Taxes If You Move to Puerto Rico?

Short answer: usually yes — but not on everything. Moving to Puerto Rico changes your federal tax picture; it does not end it. Here is exactly what still applies.

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Content current as of July 2026. This page is general information, not legal or tax advice, and does not create an attorney-client relationship. Your federal filing obligations depend on your specific facts; confirm them with qualified counsel before acting.

The one rule that decides everything: IRC §933

Puerto Rico is a U.S. territory with its own tax system. The federal benefit that makes a move worthwhile comes from Internal Revenue Code §933: a bona fide resident of Puerto Rico excludes Puerto Rico–source income from U.S. federal income tax. That exclusion — not Act 60 itself — is what removes the federal layer on your island income. Act 60 then reduces the Puerto Rico tax on that same income to 0% or 4%.

The critical word is Puerto Rico–source. Section 933 only reaches income sourced to Puerto Rico. Everything else — U.S.-source income, most foreign-source income, and several categories that look like PR income but are not — stays fully within the U.S. federal system. And §933 depends entirely on your being a genuine bona fide resident under IRC §937.

See what bona fide residency actually requires →

What you still owe U.S. tax on

  • U.S.-source income — wages for work performed on the mainland, income from a U.S. business or rental property, and gains on U.S. real estate remain federally taxable, even for a bona fide Puerto Rico resident.
  • Pre-move (built-in) capital gains — appreciation that accrued before you became a resident generally stays U.S.-taxable under a special 10-year rule. Only gain that accrues after residency is treated as Puerto Rico–source. See the income-sourcing rules →
  • Self-employment tax — §933 excludes PR-source income from federal income tax, but not from federal self-employment (Social Security and Medicare) tax. A self-employed Puerto Rico resident generally still owes SECA on net earnings.
  • U.S. government wages — pay you receive as an employee of the U.S. federal government is specifically carved out of the §933 exclusion and stays federally taxable.
  • Retirement and deferred compensation — pensions, IRA/401(k) distributions, and deferred comp usually trace back to services performed before the move, so they are often not sheltered by the decree or by §933.
  • Business owners with a foreign company — a bona fide Puerto Rico resident is still a U.S. person. GILTI and Subpart F can keep taxing a controlled foreign corporation’s earnings to you federally; §933 does not shelter those inclusions. Does Act 60 eliminate GILTI/Subpart F? →

You still have to file — and report

Moving to Puerto Rico does not end your U.S. filing life. If you have any income that is not Puerto Rico–source, you generally still file a federal Form 1040. In the year you move, you also file Form 8898 to notify the IRS that you became a bona fide resident of a U.S. possession (required when your worldwide gross income is above the statutory threshold). Your citizenship does not change, so the full set of U.S. information reporting continues:

  • FBAR (FinCEN 114) and FATCA (Form 8938) for foreign financial accounts and assets;
  • Forms 5471 / 8865 / 8621 for foreign corporations, partnerships, and PFICs;
  • Federal estate and gift tax on your worldwide assets — Act 60 does nothing to reduce it.

See the full federal reporting checklist for decree holders →

The year you move is a split year

The move year is filed as a part-year picture: income earned while you were still a mainland resident is taxed the old way, and only income sourced to Puerto Rico after residency begins gets the §933 treatment. Your former high-tax state may also come after that year, counting days aggressively to argue you never really left. Getting the year-of-move allocation right — and documenting the residency start date — is where a lot of decrees quietly go wrong.

Bottom line

Act 60 plus §933 can drive the tax on your qualifying Puerto Rico income close to zero — a genuine, powerful result. But you remain a U.S. taxpayer: you still file, you still report worldwide, and your U.S.-source income, pre-move gains, self-employment tax, and estate all stay in the federal system. The plans that work treat “moving to Puerto Rico” as a coordinated federal, Puerto Rico, and prior-state exercise — not a switch that turns off the IRS.

Frequently Asked Questions

Usually, yes. A bona fide Puerto Rico resident whose income is entirely Puerto Rico–source may not need to file a Form 1040, but the moment you have any non-PR-source income — mainland wages, U.S. rentals, pre-move gains, certain business income — a federal return is generally required. In the year you move, you also file Form 8898 to report becoming a bona fide resident of a U.S. possession.

No. Act 60 is a Puerto Rico tax benefit. The federal exclusion comes from IRC §933 and reaches only Puerto Rico–source income, and only while you are a bona fide resident. U.S.-source income, most foreign income, self-employment tax, GILTI/Subpart F inclusions, and federal estate tax all remain. Act 60 lowers the Puerto Rico tax; §933 removes the federal tax on PR-source income — neither erases your status as a U.S. taxpayer.

Generally yes. Section 933 excludes Puerto Rico–source income from federal income tax, but it does not exclude it from federal self-employment (SECA) tax. A self-employed bona fide Puerto Rico resident typically still owes Social Security and Medicare tax on net self-employment earnings. How you are structured — sole proprietor versus operating through a corporation that pays a reasonable salary — changes the analysis, which is worth reviewing before you file.

Related Resources

Not sure what you’ll still owe after the move?

We map your federal, Puerto Rico, and prior-state exposure together — income mix, built-in gains, self-employment, and reporting — so there are a clear picture before filing time.

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The information on this page is for general educational purposes only and does not constitute legal or tax advice. Federal and Puerto Rico tax results depend on individual circumstances including residency, income sourcing, and applicable law, all of which change. No attorney-client relationship is formed by viewing this content. For advice specific to your situation, schedule a consultation.