PR employers affected by hurricanes Irma and Maria may qualify for an employee retention benefit

1. Tax News Update Email this document Print this document
March 16, 2018
2018-0585
Puerto Rico employers affected by Hurricanes Irma and María may qualify for an
employee retention benefit
The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Federal Disaster Tax Relief Act), signed by
President Trump on September 29, 2017, provides a broad array of relief measures aimed at assisting in the
recovery efforts of both individuals and businesses affected by Hurricanes Harvey, Irma and María. The Federal
Disaster Tax Relief Act provides temporary tax relief for victims in hurricane disaster zones. For employers, the
Federal Disaster Tax Relief Act includes tax relief in the form of a tax credit for wages paid to eligible employees
(HDZ Retention Credit) during the disaster period (but no later than December 31, 2017).
Overview of the HDZ Retention Credit
The table below summarizes the key features of the HDZ Retention Credit and the eligibility rules:
(*) Eligible locations for Irma were: Canóvanas, Cataño, Culebra, Dorado, Fajardo, Loíza, Luquillo, Toa Baja, Vega
Baja, and Vieques. (Irma map: https://www.fema.gov/disaster/4336). In the case of María, all 78 municipalities are
considered eligible locations (https://www.fema.gov/disaster/4339)
HDZ Retention Credit in Puerto Rico — Direct payment deposit
Recently, the Puerto Rico Government announced that it reached an agreement, still to be formally finalized, with
the United States Treasury to expand the HDZ Retention Credit to include a direct payment option available to
eligible employers in Puerto Rico. To that effect, the Under Secretary of the Puerto Rico Treasury Department
(PRTD) has stated that the Government intends to begin distributing HDZ Retention Credit funds to eligible
employers in Puerto Rico as soon as the United States Treasury approves the disbursement of funds. According to
PRTD officials, the agreement is expected to be finalized sometime in March 2018.
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2. Unlike the US, which has taxpayers claim the HDZ Credit on their federal income tax return, Puerto Rico would pay
the HDZ Retention Credit directly to the eligible employer's bank account (Direct Payment Retention Credit). The
PRTD announced that it will make an on-line application process available to facilitate claiming the Direct Payment
Retention Credit.
Implications
The Direct Payment Retention Credit represents much-needed relief for eligible employers in Puerto Rico that have
been affected by Hurricanes Irma and María. Employers are encouraged to begin analyzing eligibility and the
potential claim amount of the HDZ Credit in preparation for the PRTD's on-line request process becoming available.
Among areas that should be evaluated are the closure and inoperability dates of each location within the disaster
zone, the identification of eligible employees, and confirmation of the wages paid to them during the period of
inoperability. Further guidance is expected from the PRTD to help employers determine the inoperability date
ranges.
Eligible employers should also analyze the tax implications within their operational structure of claiming the HDZ
Retention Credit on their US income tax returns, as compared with the Direct Payment Retention Credit to be
provided by the PRTD.
For more information, please see the attached slipsheet.
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Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
• Rosa M. Rodríguez (787) 772-7062
• Pablo Hymovitz Cardona (787) 772-7119
Credits and Incentives Group
• Phil Hurak (513) 612-1502
• Tim Parrish (214) 756-1136
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to
the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-
tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this
information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.
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