When Are Benefits Taxable?

According to Section 861 of the Internal Revenue Code (IRC), Social Security benefits are always considered U.S. source income. Therefore, the taxable part of Social Security benefits cannot be excluded under Section 933 and the rules for determining the taxable part of Social Security benefits apply to residents of Puerto Rico.

To determine whether Social Security benefits are taxable, use the worksheet Pub. 915 to compare taxpayers':

• Base amount (as shown for their filing status), and
• Total of their income (including exempt Puerto Rico source income and interest) and half their Social Security benefits

If that total is more than the base amount, part of their Social Security benefits may be taxable. In general, the higher that total, the greater the taxable part of the benefits (up to 85%).