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How do Social Security, Medicare, and employer payroll taxes apply to Puerto Rico residents?
Executive summary
Puerto Rico residents and employers generally pay the same Social Security (OASDI) and Medicare payroll taxes (FICA) as people in the 50 states — typically 6.2% employee and 6.2% employer for Social Security and 1.45% each for Medicare, with self‑employed persons paying the combined rates (about 15.3% historically) — and employers must withhold and report those taxes using standard IRS forms (Form 941, etc.) [1] [2] [3]. At the same time, Puerto Rico has its own income‑tax system (Hacienda) and some federal benefits and funding levels differ from states, a tension that appears repeatedly in local analyses [4] [5].
1. Who pays FICA in Puerto Rico — the headline: payroll taxes apply
Workers and employers in Puerto Rico are subject to federal payroll taxes that fund Social Security and Medicare; employers must withhold the employee portion and remit the employer portion just as on the mainland [1] [6]. Multiple professional summaries and payroll guides state that Puerto Rico is covered by the U.S. Social Security system and that FICA withholdings apply to wages paid for services performed on the island [6] [4] [3].
2. Rates and self‑employment: the commonly quoted numbers
The commonly cited rates are 6.2% each for Social Security and 1.45% each for Medicare for employees and employers — producing the familiar 12.4%/2.9% split for OASDI/Medicare — and self‑employed taxpayers pay the combined amount (historically about 15.3%) subject to the normal wage base limits for Social Security and no cap for Medicare [1] [2]. Several payroll guides for Puerto Rico repeat these historic rates, while reminding readers the Social Security wage base and any surtaxes can change year to year [7] [2].
3. Reporting and forms: IRS procedures used on the island
Employers in Puerto Rico use IRS employment forms (for example, Form 941, Form 943, Form 944 and related correction forms) to report FICA tax withholdings when employees are bona fide Puerto Rico residents, per IRS Topic guidance [1]. Local payroll guides stress a dual compliance burden: employers must handle federal FICA/FUTA obligations and also follow Puerto Rico withholding and reporting rules with Hacienda [8] [9].
4. How Social Security and Medicare benefits interact with residency
Sources confirm Puerto Ricans who paid into Social Security are eligible for benefits at retirement and that payroll taxes collected on the island feed the same federal programs [4] [10]. At the same time, commentary and advocacy pieces note Puerto Rico receives different levels of federal program funding and some differences in eligibility or benefit levels compared with states, a point used by statehood proponents to argue for equal treatment [5] [10].
5. Federal income tax vs. payroll taxes — the key distinction
A recurring clarification in the sources: most Puerto Rico residents do not pay U.S. federal income tax on Puerto Rico‑sourced income, but that exemption does not extend to payroll taxes — payroll taxes are still collected [4] [11]. Several explainers use that distinction to highlight the fairness debate: residents pay into Social Security and Medicare but argue they do not always receive equivalent program funding or political representation [5] [11].
6. Local withholding, additional Puerto Rico payroll levies and compliance complexity
Employers in Puerto Rico face additional local payroll-related levies (Puerto Rico income withholding, unemployment/disability contributions, state insurance, Christmas bonus rules, chauffeur tax, etc.), plus local filing rhythms and deposit rules that differ from U.S. states, so payroll teams must run federal and Puerto Rico calculations in parallel [12] [9] [13]. Practical payroll guides warn mistakes can trigger both IRS and Hacienda penalties [8].
7. Limitations and disagreements in the available material
The provided sources agree on the core point — that FICA applies in Puerto Rico — but vary in emphasis: IRS guidance and accounting firms present it as routine compliance [1] [6], while advocacy pieces stress perceived unequal returns to Puerto Rico from federal programs despite equal payroll contributions [10] [11]. Available sources do not provide a complete, up‑to‑date table of 2025 wage bases, any recent changes to employer/employee percentages, nor do they settle political arguments about statehood — those topics require official IRS/Hacienda rate tables or legislative analysis not found in the current set (not found in current reporting).
If you want, I can pull the exact current wage base limits, the latest IRS Topic citations, or Hacienda withholding forms and local rates from the primary agencies (IRS and Puerto Rico Department of the Treasury) to build a one‑page payroll checklist for employers and for individuals.