If you move from mainland U.S. to Puerto Rico, an unincorporated U.S. territory, can you avoid federal income tax? The discussion around this cite a program known as Act 60. While this program offers substantial tax benefits to new residents of Puerto Rico, there are misconceptions and overlooked details regarding its implementation and impact.

The claim that you pay no federal income tax by moving to Puerto Rico is partially true but requires clarification. Under Act 60, new residents of Puerto Rico are granted a 100% federal tax exemption from Puerto Rico-sourced income, interest, dividend, and capital gains income. However, they are still required to pay federal taxes on income earned in the U.S. Additionally, beneficiaries of Act 60 must fulfill certain requirements, such as buying a home on the island within two years of becoming residents, spending at least half of their time in Puerto Rico, and contributing annually to approved Puerto Rican charities.

Act 60, originally known as Acts 22 and 20, aimed to attract wealthy Americans to Puerto Rico to stimulate economic growth by fostering business development and job creation on the island. However, concerns have been raised about the implementation of the program and its impact on the local economy. Critics argue that the tax incentives provided by Act 60 have contributed to rising housing prices, displacement of local residents, and loss of critical revenue for the U.S. Treasury.

While some Act 60 beneficiaries have invested in businesses and infrastructure projects in Puerto Rico, the extent of their contributions to job creation and economic development is subject to debate. Some reports suggest that beneficiaries have created new jobs and industries on the island, others question the long-term sustainability and equity of these investments, Reason.com reported.

U.S. government officials are trying to crack down on the rich using Act 60 to avoid taxes. I November 2023, Rep. Nydia Velazquez, Democrat of New York, and a dozen colleagues sent a letter to the IRS calling on the IRS to crack down on the noncompliant behavior of about 100 rich Americans claiming extraordinary tax breaks under Act 60, which benefits Americans who relocate to Puerto Rico and become bona fide residents, CBS News reported.

And the IRS seems to be taking action. “These wealthy individuals are attempting to avoid U.S. taxation on U.S. source income, and we expect many of these cases to proceed to criminal investigation,” the IRS said in a July press release.

The legality and ethical implications of Act 60 are complex. While the program operates within the legal framework established by the Puerto Rican government, concerns have been raised about potential abuses and loopholes that allow wealthy individuals to exploit tax incentives at the expense of local residents and the broader U.S. economy. Efforts to address these concerns and ensure compliance with tax laws are ongoing, as evidenced by recent calls for IRS investigation and oversight of Act 60 beneficiaries.

Some in the African American community have long disputed that they should pay taxes, considering the lack of reparations for free labor by their ancestors as well as systemic racism that has blocked them from wealth.

In fact, in the 1905s and 1960s, Nation of Islam leader Elijah Muhammad preached that Black people in America should not pay federal taxes because they have not been given the benefits of full U.S. citizenship. And there were solid reasons why. According to one of the points in the original Muslim Program in the Muhammad Speaks Newspaper, the Nation of Islam wanted “the government of the United States to exempt our people from ALL taxation as long as we are deprived of equal justice under the laws of the land.”

Photo of flag by Benjamin De La Rosa: https://www.pexels.com/photo/ripped-puerto-rican-flag-on-a-flagpole-12846158/Photo of income tax form by Kindel Media: https://www.pexels.com/photo/income-tax-return-paper-7688995/