2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1005 - Computation of Taxable Income (§§ 30101 — 30157) › Subchapter C - Deductions (§§ 30121 — 30140) › § 30129 - Contributions by an employer to employees’ trust or annuity plan and compensation under a deferred-payment plan

(a) Subject to the provisions of this section, the contributions made by an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan may be deducted against gross income of the trade or business.
(1) General rule.— If contributions are paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan, or if compensation is paid or accrued on account of any employee under a plan deferring the receipt of such compensation, such contributions or compensation shall not be deductible under § 30121 of this title; however, if they would otherwise be deductible under § 30121 of this title, they shall be deductible under this subsection, subject, however, to the following limitations:
(A) In the taxable year when paid, if the contributions are paid into a pension trust, and if such taxable year ends within or with a taxable year of the trust for which the trust is exempt under § 30391(a) of this title, in an amount determined as follows:
(i) In the case of a defined benefit pension plan:
(I) An amount not in excess of five percent (5%) of the compensation otherwise paid or accrued during the taxable year to all the employees under the trust, but such amount may be reduced for future years if found by the Secretary upon periodical examinations at not less than five (5) year intervals to be more than the amount reasonably necessary to provide the remaining unfunded cost of past and current service credits of all employees under the plan, plus
(II) any excess over the amount allowable under item (I) necessary to provide with respect to all of the employees under the trust the remaining unfunded cost of their former and current credits for service distributed as an equal amount, or an equal percentage of compensation, on the remaining future services of each one of said employees, as determined under regulations prescribed by the Secretary, but if such remaining unfunded cost with respect to any three (3) individuals were greater than fifty percent (50%) of such remaining unfunded cost, the amount of such unfunded cost attributable to such individuals shall be distributed over a period of at least five (5) taxable years, or
(III) in lieu of the amounts allowable under the preceding items (I) and (II), an amount equal to the normal cost of the plan, as determined under regulations prescribed by the Secretary, plus, if the plan provides credit past services or other supplementary pension or annuity credits, an amount not in excess of ten percent (10%) of the cost that would be required to totally cover or purchase said pension or annuity credits as of the date of their inclusion in the plan, as determined by regulations prescribed by the Secretary, except that in no case shall a deduction be allowed for any amount, other than the normal cost, paid in after such pension or annuity credits have been totally funded or purchased.
(IV) In lieu of the amounts allowed under the preceding items (I), (II), and (III), the amount necessary to satisfy the minimum funding standard provided by Sections 302(a)(2)(A) and (C) of the Employee Retirement Income Security Act of 1974 (“ERISA”) or any section or provision of any successor law for the plan year which ends with or within the taxable year in which such amount is paid or for any prior plan year. In those cases in which this item applies, the limitation provided under paragraph (F) shall not apply.
(V) Any amount paid in a taxable year in excess of the amount deductible in such year under the foregoing limitations shall be deductible in the succeeding taxable years in order of time to the extent of the difference between the amount paid and deductible in each such succeeding year and the maximum amount deductible for such year in accordance with the foregoing limitations.
(ii) In the case of defined contribution pension plan:
(I) In the taxable year when paid, if the contributions are paid into a defined contribution pension plan trust, and if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under § 30391(a) of this title, in an amount not in excess of twenty-five percent (25%) of the compensation otherwise paid or accrued during the taxable year to all employees under the defined contribution pension plan. If in any taxable year beginning after December 31, 1953, there are paid into the trust, or a similar trust then in effect, amounts less than the amounts deductible under the preceding sentence, the excess, or if no amount is paid, the amounts deductible, shall be carried forward and deductible, when paid in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any such succeeding taxable year shall not exceed twenty-five percent (25%) of the compensation otherwise paid or accrued during such succeeding taxable year to the beneficiaries under the plan. In addition, any amount paid into the trust in a taxable year beginning after December 31, 1953, in excess of the amount allowable with respect to such year under the preceding provisions of this paragraph shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any one such succeeding taxable year together with the amount allowable under the first sentence of this paragraph shall not exceed twenty-five percent (25%) of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan. If the contributions are made to two or more in defined contribution plan trusts, such trusts shall be considered a single trust for purposes of applying the limitations in this paragraph.
(B) In the taxable year when paid, in an amount determined in accordance with paragraph (A), if the contributions are paid toward the purchase of retirement annuities and such purchase is a part of a plan which meets the requirements of clauses (3), (4), (5) and (6) of subsection (a) of § 30391 of this title, and if refunds of premiums, if any, are applied within the current taxable year or next succeeding taxable years towards the purchase of such retirement annuities.
(C) In the taxable year when paid, if the contributions are paid into a stock bonus or profit-sharing trust, and if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under § 30391(a) of this title, in an amount not in excess of twenty-five percent (25%) of the compensation otherwise paid or accrued during the taxable year to all employees under the stock bonus or profit-sharing plan. If in any taxable year beginning after December 31, 1953, there are paid into the trust, or a similar trust then in effect, amounts less than the amounts deductible under the preceding sentence, the excess, or if no amount is paid, the amounts deductible, shall be carried forward and be deductible when paid in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any such succeeding taxable year shall not exceed twenty-five percent (25%) of the compensation otherwise paid or accrued during such succeeding taxable year to the beneficiaries under the plan. In addition, any amount paid into the trust in a taxable year beginning after December 31, 1953, in excess of the amount allowable with respect to such year under the preceding provisions of this paragraph shall be deductible in the succeeding taxable years in order of time, but the amount so deductible under this sentence in any one such succeeding taxable year together with the amount allowable under the first sentence of this paragraph shall not exceed twenty-five percent (25%) of the compensation otherwise paid or accrued during such taxable year to the beneficiaries under the plan. The term “stock bonus or profit-sharing trust”, as used in this paragraph, shall not include any trust designed to provide benefits upon retirement and covering a period of years, if under the plan the amounts to be contributed by the employer can be determined actuarially as provided in paragraph (A). If the contributions are made to two (2) or more stock bonus or profit-sharing trusts, such trusts shall be considered a single trust for purposes of applying the limitations in this paragraph.
(D) When paid within the taxable year, if the plan is not one included in paragraphs (A), (B) or (C), if the employees’ rights to or derived from such employer’s contribution or such compensation are non-forfeitable at the time when the contribution or compensation is paid.
(E) For purposes of paragraphs (A), (B) and (C), a taxpayer shall be deemed to have made a payment on the last day of the year if the payment is on account of such taxable year and is made on or before the last day authorized by this part to file the income tax return for such year, including any extension granted by the Secretary for the filing of the same, if the payments are made to a plan established and existing on or before the last day of the taxable year for which such plan is effective.
(F) If amounts are deductible under paragraphs (A)(i) or (B), with regard to a trust or an annuity plan, or under paragraphs (A) and (C), or (B) and (C), or (A), (B) and (C) with regard to two or more trusts, or one or more trusts and an annuity plan, the total deductible amount in taxable year under said trusts and plans shall not exceed twenty-five percent (25%) of the compensation otherwise paid or accrued during the taxable year to the persons who are the beneficiaries of the trusts or plans. In addition, in the case of two or more trusts, or one or more trusts and an annuity plan, any amount paid to such trust or under said annuity plan in a taxable year commencing after June 30, 1995, in excess of the admissible amount with respect to said year under the preceding provisions of this subparagraph, shall be deductible in the following taxable years in order of time, but the amount thus deductible under this sentence in any of said following taxable years, along with the amount allowable under the first sentence of this subparagraph, shall not exceed thirty percent (30%) of the compensation otherwise paid or accrued during said taxable years to the beneficiaries under the trusts or plans.
(G) Contributions to employee stock ownership plans.— Notwithstanding the provisions of paragraphs (C) and (F) of this clause, if contributions are paid into a trust which forms a part of an employee stock ownership plan (as described in § 30391(h)(1) of this title) and such contributions are applied by the plan to the repayment of the principal of and interest on a loan incurred for the purpose of acquiring qualifying employer securities (as described in § 30391(h)(2) of this title), such contributions shall be deductible under this Section for the taxable year in which they are paid in an amount that shall not exceed twenty-five percent (25%) of the compensation otherwise paid or accrued during the taxable year to the employees under such employee stock ownership plan. Any amount paid into such trust in any taxable year in excess of the amount allowed under this paragraph shall be deductible in the succeeding taxable years in order of time to the extent of the difference between the amount paid and deductible in each such succeeding year and the maximum amount deductible for such year under the preceding sentence.
If there is no plan but a method of employer contributions or compensation has the effect of a stock-bonus, pension, profit sharing, or annuity plan, or similar plan deferring the receipt of compensation, this clause shall apply as if there were such a plan.
(2) Deductions under prior income tax laws.— Any deduction allowable under the Internal Revenue Code of 1994, as amended, for a taxable year beginning before January 1, 2011, or under the Income Tax Act of 1954, as amended, for a taxable year beginning before July 1, 1995, which under said Code or Act, as applicable, was carried over to any taxable year beginning after December 31, 2010, shall be allowed as a deduction for the years to which it was so carried over to the extent allowable under the such Code or Act, whichever is applicable, if it had remained in force with respect to said year.
(3) Self-employed individuals.— In the case of a plan covered in clause (1) which provides contributions or benefits for employees, all or any of whom are employees within the meaning of § 30391(f)(1) of this title and the employer of said individual is the person treated as his/her employer under § 30391(f)(4) of this title:
(A) The term “employee” includes an individual which is an employee within the meaning of § 30391(f)(1) of this title and the employer of said individual is the person who is treated as his/her employer under § 30391(f)(4) of this title;
(B) the term “earned income” has the meaning established in § 30391(f)(2) of this title;
(C) the contributions to said plan in benefit of an individual who is an employee within the meaning of § 30391(f)(1) of this title shall be considered as satisfying the conditions of ordinary and necessary expenditure of subsection (a) of this section, up to the limit that the contribution in benefit of an individual that is treated as an employee within the meaning of § 30391(f)(1) of this title does not exceed twenty-five percent (25%) of the income earned by said individual (determined without considering the deductions allowable under this subsection) derived from the trade or business with respect to which said plan is established, and to the extent that said contributions are not attributable (determined in agreement with the regulations prescribed by the Secretary) to the purchase of life, accident, health, or other insurance, and
(D) in case of an individual who is an employee within the meaning of § 30391(f)(1) of this title, any reference to compensation shall be considered as a reference to the income earned by said individual derived from the trade or business with respect to which the plan is established.
(4) In addition to the deductions allowed under clause (1), a corporation may deduct the amount of any dividend paid in cash by said corporation during the taxable year with regard to its stock, if:
(A) Said stock is owned as of the registration date of the dividend by an employee stock ownership plan (as defined in § 30391(h)(1) of this title), maintained by said corporation or by any other corporation that is a component member of a controlled group of corporations (within the meaning of § 30044(a) of this title) which includes the corporation that maintains the plan, and
(B) pursuant to the provisions of the plan the dividend, whether assigned to the participants or not, is used to make payments on a loan described in clause (1)(G) of this subsection.
Any deduction under paragraph (B) shall be allowed in the corporation’s taxable year in which the dividend is used to pay the loan described in said paragraph. Paragraph (B) shall apply to dividends in employer stock assigned to any participant, unless the plan provides for an employer’s stock with a fair market value of not less than the amount of said dividends to be assigned to said participant for the year in which (if it were not for the provisions of paragraph (B)) said dividends would have been assigned to said participant.
(5) Tax on nondeductible contributions to qualified retirement plans.—
(A) Imposition of tax.— In the case of any qualified retirement plan under § 30391 of this title, it is hereby imposed a tax equal to ten percent (10%) of the nondeductible contributions under the plan (determined as of the close of the taxable year of the employer). This contribution shall apply even if the nondeductible contribution is not claimed as deduction in the income tax return of the employer.
(B) Employer liable for tax.— The tax imposed by this clause shall be paid by the employer making the nondeductible contributions.
(C) Nondeductible contributions.—
(i) The term “nondeductible contributions” means the sum of:
(I) The excess of the amount contributed for the taxable year by the employer to or under such plan, over the amount allowable as a deduction under this section, plus
(II) the excess of any nondeductible contribution for the preceding taxable year which began after December 31, 2010, over the amount properly returned to the employer during the taxable year, and the amounts deductible under this section for the current taxable year.
(ii) In determining the amount of nondeductible contributions, the deductible amount under this section for any taxable year shall be treated first from nondeductible contributions made in preceding taxable years and carried forward to such taxable year. Then, nondeductible contributions made during such taxable year shall continue to be subject to the payment of the tax provided herein until they are properly returned to the employer or deducted in subsequent taxable years.
(iii) In the case of employers that are tax-exempt organizations under § 30471 of this title, the nondeductible contributions shall be determined by applying the limits of this section but assuming that the employer is not a tax-exempt organization under § 30471 of this title.
(iv) In determining the amount of nondeductible contributions, after tax contributions made to the plan pursuant to § 30391(a)(15) of this title shall be excluded.
(D) Contributions that may be returned to employer.— In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account any contributions that have been made under the condition that they be deductible under this section and returned to the employer not later than the last day on which the employer must file the income tax return for the taxable year in which the contribution was made, including any extension granted by the Secretary.
History —Jan. 31, 2011, No. 1, § 1033.09, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 30.