Earned Income Credit: which income counts and how it must be reported

The Earned Income Credit — the Earned Income Tax Credit — is a tax credit for people who work. This guide does not cover the whole credit: it covers the piece that decides whether your income counts, which is subsection (b) of Section 1052.01, the only one Act 44-2026 touched. It is the piece where most people fall out without knowing why.

This guide does not say who qualifies for the credit: that is in subsection (a) of Section 1052.01, which the text we read prints elided as “(a) …” and which we therefore did not read. What this guide describes is what kind of income counts as “earned gross income” and on which informative return it must be reported.

• That the amounts be included in gross income for the taxable year. The subsection sets it as an express condition: “but only if those amounts are included in gross income for the taxable year”.Verified against the official source
• If you are an employee: that the income be duly reported on a withholding voucher required under Section 1062.01(n)(2) — whether or not subject to withholding — or on an informative return issued under Section 1081.01 of the Code.Verified against the official source
• If you are a federal government pensioner: that the pension amounts be reported on Form 1099-R or any other form the federal government uses for those purposes.Verified against the official source
• If you are self-employed, for purposes of paragraph (5) of subsection (a): being in compliance with Section 4060.01 of the Code; that the income be subject to federal social security tax; that it be duly reported on an informative return issued under Section 1062.03, 1063.01 or 1063.15; and that it be reported on the Income Tax Return as income subject to tax.Verified against the official source

• The ones the law itself names: the withholding voucher under Section 1062.01(n)(2), the informative return under Section 1081.01, Form 1099-R for federal pensions, and the informative returns under Sections 1062.03, 1063.01 or 1063.15 for trade, self-employment or income-producing activity income.

1. 1

   Step 1: The condition that decides everything: being reported

   Subsection (b) does not only say what kind of income counts; it says on which paper it must appear. It includes salaries, wages, tips, pensions, all remuneration for services rendered by an employee to their employer — whether exempt or taxable — or other compensation from rendering services as an employee, “but only if those amounts are included in gross income for the taxable year, and provided those amounts are duly reported on a withholding voucher required under Section 1062.01(n)(2) whether or not subject to withholding, or an informative return issued under Section 1081.01 of this Code”. The phrase “whether or not subject to withholding” matters: nothing being withheld does not knock the income out, so long as it is reported.

2. 2

   Step 2: If you are a federal pensioner

   The subsection treats it separately and says so unambiguously: in the case of federal government pensioners, the pension amounts reported on Form 1099-R or any other form the federal government uses for those purposes count.

3. 3

   Step 3: If you are self-employed: four conditions at once

   This is where most people fall out, and the law writes it with four chained requirements. For purposes of paragraph (5) of subsection (a), the term “earned gross income” also includes income from a trade, self-employment business or an income-producing activity by a resident of Puerto Rico who is in compliance with Section 4060.01 of this Code, and whose income is subject to federal social security tax, and provided that income is duly reported on an informative return issued under Section 1062.03, 1063.01 or 1063.15 of this Code and reported on the Income Tax Return as income subject to tax. Note they are cumulative: compliance with 4060.01, federal social security, informative return, and reported on the return.

4. 4

   Step 4: What exactly this Act fixed

   It is not a new benefit and we would rather nobody sold it to you as one. The statement of motives calls it a technical amendment, “in order to correct the right reference within the informative returns as evidence of the earned gross income to which the Earned Income Credit may apply”, and says the purpose is to foster proper execution of the provisions already approved. In practical terms: which informative return is pointed to as proof of income was corrected.

5. 5

   Step 5: Where the credit comes from, per the law itself

   Context the statement of motives supplies, and we cite it as what it is — legislative intent, not operative text. On 11 March 2021 the American Rescue Plan Act, Public Law 117-2, was signed, extending the Earned Income Credit to Puerto Rico; the Legislature says those benefits will grant citizens over $800 million annually, subject to inflation increases, and mentions Act 41-2021 as the local piece. That figure is for the whole programme, not for what one person receives, and we read it in no table: we cite it as the legislature wrote it.

6. 6

   Step 6: What this guide will not tell you, and why

   How much the credit is, up to what income you may earn, how many dependents count and how it is computed are in subsections (a) and (c) of Section 1052.01. This Act’s text prints them as “(a) …” and “(c) …”, that is, elided, so we did not read them and we are not going to reconstruct them from memory. For those figures, the source is the Treasury Department or your accountant.

The Earned Income Credit is claimed on the Income Tax Return, filed with the Treasury Department. Act 44-2026 creates no new counter or form: it amends a definition in the Internal Revenue Code. The law publishes no address, phone or portal.

• Believing income counts even if unreported: the subsection conditions it on being duly reported on the withholding voucher or the informative return it names.
• Thinking it does not count if nothing was withheld: the law says “whether or not subject to withholding”.
• Leaving out tips or exempt remuneration: the subsection includes tips and all remuneration for services rendered to an employer, whether exempt or taxable.
• Assuming self-employment income enters automatically: the law requires compliance with Section 4060.01, being subject to federal social security, an informative return under Sections 1062.03, 1063.01 or 1063.15, and being reported on the return as income subject to tax.
• Looking in this Act for how much the credit is: the amounts are in subsections (a) and (c), which the text prints elided.
• Reading the $800 million as an individual benefit: it is the whole-programme figure the statement of motives cites.

These are the government pages this guide is based on.

• Departamento de Hacienda de Puerto Rico

  Hacienda

  bvirtualogp.pr.gov