Tax Planning
Tax Planning Opportunities Under Working Families Tax Cuts for Residents in U.S. Territories
Residents of Puerto Rico and US Territories can benefit significantly under reforms introduced by the Working Families Tax Cuts and One, Big, Beautiful Bill—understanding these will help you lower your tax bill.
By NomadicTax Research Team • 5-8 min read • September 13, 2026
## Key Changes from “One, Big, Beautiful Bill” and Working Families Tax Cuts
This legislation, enacted July 4, 2025, has adjusted U.S. federal tax rules in ways that particularly benefit bona fide residents of U.S. territories like Puerto Rico. Highlights include:
- **Increased standard deductions**: Single filers and married filing separately receive $16,100; heads of household $24,150; married couples filing jointly $32,200 for tax year 2026. ([irs.gov](https://www.irs.gov/newsroom/working-families-tax-cuts-individuals-and-workers?utm_source=openai))
- **No tax on tips or overtime**, plus relief on car loan interest; and enhanced deductions for seniors, subject to income & excluded income thresholds. ([irs.gov](https://www.irs.gov/publications/p570?utm_source=openai))
- **Expanded access to the Additional Child Tax Credit** for bona fide residents of Puerto Rico: now available even with just one qualifying child. ([irs.gov](https://www.irs.gov/publications/p570?utm_source=openai))
## Effective Planning Strategies
1. **Timing your move**: If you establish bona fide residence in a territory mid-year and meet the tests, you may qualify to exclude territory income for held period.
2. **Maximizing deductions & credits**:
- Track income excluded & income taxable in U.S. to adjust standard deduction eligibility.
- Explore credits like ACTC if you have dependents.<br>
- For self-employment income: be aware that self-employment tax still applies even if income is excluded. ([irs.gov](https://www.irs.gov/publications/p570?utm_source=openai))
3. **Income sourcing**: Try to structure business such that as much income as possible is **territory-sourced** — clients, operations, contracts located locally.
4. **Federal vs territory filing obligations**: Under territory source exclusion rules, you may not need to file federal returns unless you have non-territory income above thresholds. Pub. 570 gives guidance. ([irs.gov](https://www.irs.gov/publications/p570?utm_source=openai))
## Practical example: Maria in USVI
Maria moves to the U.S. Virgin Islands in January 2026, becomes a bona fide resident, earns $80,000 locally (territory-sourced) and $20,000 remotely from U.S. clients. She’ll:
- Exclude the $80,000 from U.S. federal income tax;
- Pay U.S. tax on the $20,000 non-territory income;
- Qualify for the ACTC if she has a child; receive increased standard deduction;
- Continue self-employment tax on her net earnings, including territory income.
## Action checklist
- Confirm bona fide residence before or early in the tax year.
- Categorize all income properly by source.
- Claim all credits and deductions made available under recent legislation.
- File Form 8898 if you begin or cease bona fide residence with worldwide gross income over $75,000.
- Maintain records: travel, contracts, income sources.
**Bottom line**
a new regulatory landscape means territory residents can save significantly. With the Working Families Tax Cuts, exclusions, standard deduction hikes, and credit expansions, planning matters more than ever.