Procedures for Puerto Rico residents to claim a 2021 child tax credit

By Paul Bonner

The IRS on Friday provided guidance on how bona fide residents of Puerto Rico can claim the child tax credit (CTC) for tax year 2021. The guidance provides simplified procedures to allow eligible "Puerto Rico CTC filers" (defined below), who were not required to file a 2021 federal income tax return, to provide information to the IRS to claim the CTC by filing a simplified federal tax return.

Rev. Proc. 2022-22 outlined the procedures under Sec. 24(k), added to the Code by the American Rescue Plan Act (ARPA), P.L. 117-2, which prescribes special rules for residents of Puerto Rico and other specified U.S. territories to claim the CTC.

For 2021, a bona fide resident of Puerto Rico with one or more qualifying children as defined under Secs. 24(i)(1) and (k)(2) may claim the credit. Under pre-ARPA law, bona fide residents of Puerto Rico with no earned income for federal tax purposes were required to have at least three qualifying children to claim the credit.

ARPA enhanced the CTC for all taxpayers, including Puerto Rico residents, in other ways for 2021 as well, notably, by making it fully refundable, increasing its maximum amounts, and modifying its phaseout ranges. Furthermore, bona fide residents of Puerto Rico may claim the fully refundable CTC for 2021 even if they had no income and paid no U.S. Social Security taxes.

Under the revenue procedure, a "Puerto Rico CTC filer" is an individual who:

  • Is a bona fide resident of Puerto Rico within the meaning of Sec. 937(a) for the 2021 tax year;
  • Whose income for tax year 2021 was fully exempt from taxation under Sec. 933;
  • Who was not required to file a return for federal income tax for 2021 on Form 1040-PR, Planilla Para la Declaración de la Contribución Federal Sobre el Trabajo por Cuenta Propia; Form 1040-SS, U.S. Self-Employment Tax Return; Form 1040, U.S. Individual Income Tax Return (or its Spanish-language version); or Form 1040-SR, U.S. Tax Return for Seniors (or its Spanish-language version);
  • Whose modified adjusted gross income for tax year 2021 under Sec. 24(b)(1) was less than or equal to the applicable income threshold under Sec. 24(i)(4)(B);
  • Who is eligible to claim the child tax credit in an amount greater than zero for tax year 2021;
  • Who is a U.S. citizen or resident alien (or treated as a U.S. resident alien pursuant to an election under Sec. 6013(g) or (h)); and
  • Who has not already filed any of the above tax forms for tax year 2021.

Puerto Rico CTC filers may use a simplified method of completing Form 1040-PR or 1040-SS in the manner and containing information described in Section 4.03 of the revenue procedure, and the IRS will process the form to calculate the CTC.

Under another set of instructions in Section 5 of the revenue procedure, a second simplified procedure is provided under which a Puerto Rico CTC filer may file a simplified return on paper or electronically on Form 1040 or Form 1040-SR to claim the child tax credit.

Both forms of simplified returns are a federal tax return for all purposes, the revenue procedure states.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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