The National Directory of Certified Public Accountants

Ask A CPA - Income Reporting from U.S. Possessions

U.S. Government Employees

Wages and cost-of-living allowances paid by the U.S. Government or one of its agencies for working in Puerto Rico are subject to Puerto Rican tax. The cost-of-living allowances are excluded from Puerto Rican Gross income up to the exempt from U.S. tax. These wages are also subject to U.S. tax but the cost-of living allowances are excludable. A foreign tax credit is available in order to ovoid double taxation.

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