Puerto Rico: federal residence, income source and filing

Three separate decisions

For the section 933 exclusion, establish bona fide residence, identify the source of each income item, and then determine which returns are required. A Puerto Rico address or local decree does not replace the federal tests in 26 USC 937. The exclusion in 26 USC 933 applies to qualifying Puerto Rico-source income, not automatically to every receipt of someone living there.

This Guide uses the 2025 IRS Publication 570 and federal sections fetched in October 2026. It focuses on US citizens and resident aliens. Nonresident aliens and military families have distinct rules that need separate treatment.

Bona fide residence

The ordinary framework requires all three: satisfying the presence test, no tax home outside Puerto Rico during the tax year, and no closer connection to the United States or a foreign country than to Puerto Rico. Special move-year provisions and other exceptions must be applied on their own terms. 26 USC 937(a); Publication 570, chapter 1.

For a US citizen or resident alien, the IRS lists five alternative ways to meet the presence component:

• At least 183 days in Puerto Rico in the year.
• At least 549 days across the current and preceding two years, with at least 60 days in each.
• No more than 90 days in the United States in the year.
• No more than USD 3,000 US earned income, and more days in Puerto Rico than in the United States.
• No significant connection to the United States under the applicable definition.

Meeting one presence alternative does not dispense with tax home or closer connection. Special day-counting rules cover travel, medical treatment and emergencies; this list is not permission to count every absence as a Puerto Rico day. The alternatives above do not apply unchanged to nonresident aliens. Publication 570, Presence Test.

Tax home ordinarily follows the main place of business, employment or duty; it is not necessarily the family home. Closer connection examines facts such as homes, family, belongings, business and social connections, banking, voting and licensing. Spending 183 days locally does not cure a failed closer-connection test. Publication 570, Tax Home and Closer Connection.

Source of income

For ordinary personal services, the place where work is performed is central to source. A customer or employer being in the mainland United States does not, by itself, make work performed in Puerto Rico US-source; equally, payment into a Puerto Rico bank account does not turn mainland work into Puerto Rico-source income. Services performed in several locations need an appropriate allocation. Military and other special sourcing rules require separate attention. Publication 570, chapter 2, Compensation for Labor or Personal Services.

Investment income, pensions, real estate and gains have different source rules. In particular, pre-move appreciated property requires the special gain rules; this Guide does not treat selling an investment after moving as sufficient proof of Puerto Rico source. 26 USC 937(b); Publication 570, chapter 2.

Federal exclusion and return distinction

Under the ordinary section 933(1) rule, an individual who is a bona fide Puerto Rico resident for the entire taxable year excludes Puerto Rico-source income from federal gross income. Compensation as an employee of the United States or its agencies is expressly excepted. Deductions and credits allocable to excluded income are restricted. 26 USC 933(1).

For US citizens and resident aliens, Publication 570 describes a Puerto Rico return reporting worldwide income and, where a federal filing requirement exists, a federal return reporting worldwide income with qualifying Puerto Rico-source income excluded. If all income is qualifying Puerto Rico-source income, a federal income-tax return is not required solely for that excluded income. Self-employment tax and other federal reporting must still be checked. Income outside Puerto Rico can create a federal filing requirement; foreign-tax credits are subject to their own limits. Publication 570, Puerto Rico and chapter 4.

A US citizen who leaves after at least two years of bona fide Puerto Rico residence has a separate statutory rule for qualifying local income attributable to the pre-departure residence period. That is not a general exemption for the entire departure year. Arrival-year treatment also requires the specific move-year rules; do not automatically apply the full-year exclusion to a midyear move. 26 USC 933(2); Publication 570, Year of Moving.

Reporting the change and retaining evidence

Section 937(c) requires notice of a position that bona fide residence began or ended. Publication 570's Form 8898 instructions apply where worldwide gross income exceeds USD 75,000 and one of its specified residence-change positions applies. Gross income includes excluded income before deductions; the threshold is not taxable income and is not USD 75,000 or more. Check the prior-year filing position as well as the move. 26 USC 937(c); Publication 570, Reporting a Change in Bona Fide Residence.

Retain a dated travel calendar, work-location records, home and family facts, evidence of the main business location, income-by-source schedules and the relevant prior returns. These are practical evidence categories derived from the tests, not a claim that one document conclusively proves residence.

Remaining review

Checked 22 October 2026. Local personal-income rates, deductions, Act 60 eligibility, investment gains, move-year exceptions, military rules and information-return deadlines need their own verification. No independent accountant review has occurred. This is a source-cited federal framework, not comprehensive jurisdiction coverage.

Contributed by Ryan Duguid.