Puerto Rico vs Wyoming on a $1M income: a number-by-number comparison

The gap is smaller than the marketing implies

Two states get pitched to high earners as "the zero-tax move": Wyoming and Puerto Rico. Wyoming has no state income tax, no corporate income tax, and no estate tax. Puerto Rico's Act 60 advertises 0% on PR-source capital gains, 4% on qualifying business income, and 0% on Act 60 entity dividends.

On a marketing slide, PR looks unbeatable. Run the actual numbers on $1,000,000 of income, though, and Wyoming closes most of the gap, sometimes all of it, once you count the costs that don't appear in the brochures. This post walks through three scenarios at $1M and shows where each jurisdiction actually wins.

1. What each jurisdiction actually taxes

Both places stop the state meter. The federal meter never stops unless you become a bona fide resident of a US territory under IRC §933. That single sentence is the entire reason this comparison is interesting.

Income type	Wyoming (federal only)	Puerto Rico (Act 60 resident)
W-2 / salary	Federal up to 37% + payroll	Federal (still applies on non-PR-source); PR rates on PR-source wages
S-corp distribution (post-comp)	Federal ordinary on K-1 share	4% under Act 60 grant on qualifying business income
Qualified dividends (US stocks)	15% / 20% + 3.8% NIIT	Same, US-source, not §933-exempt
Long-term capital gains (US stock held pre-move)	20% + 3.8% NIIT = 23.8%	23.8% on pre-move build-up; 0% on post-move PR-source piece
Long-term capital gains (post-move, PR-source)	23.8%	0% under Act 60
Dividends from Act 60 entity	n/a	0%
State income tax	0%	PR income tax (preempted by Act 60 grant on covered income)

The Wyoming column has one rate column because Wyoming contributes nothing on top of the federal bill. The combined Wyoming LTCG rate is 23.8%, 20% federal LTCG plus 3.8% NIIT, with 0% from the state. Anyone telling you Wyoming LTCG is 43.4% is confusing it with ordinary income or with a pre-2018 high-tax-state stack.

The PR column has more rates because Act 60 is a sourcing-conditional regime, not a blanket exemption. Under IRC §933, only PR-source income gets the exclusion, and the Treas. Reg. §1.937-2(f) pre-move build-up rule pulls a lot of "obvious" capital gains back to US-source. We covered that in the Act 60 capital-gains post and will not re-litigate it here. Assume below that the PR taxpayer has already cleared bona fide residency and that gains discussed are post-move PR-source.

2. Scenario A: $1M of salary, S-corp owner

Anna runs a consulting LLC taxed as an S-corp. She pays herself $200,000 of W-2 reasonable comp and takes $800,000 as a K-1 distribution. Total economic income: $1,000,000. Single filer, no other income, standard deduction.

Wyoming. Federal ordinary income on the full $1M (W-2 + K-1 distribution flow through to her 1040). The 2025-ish federal brackets top out at 37% on income over $626,350 single. Effective federal rate on $1M of ordinary income lands around 32-34%, depending on deductions and the QBI haircut. NIIT applies only to the K-1 distribution share that is passive, and for an active S-corp owner this is usually $0. Add payroll taxes on the $200K W-2 (~$15K her side). State: 0%.

> Anna's all-in WY tax bill on $1M: ~$330,000, of which ~$315K is > federal income tax and ~$15K is her share of payroll.

Puerto Rico. Anna's $200K W-2 is PR-source wages if she performs the work in PR, and PR wages are subject to PR's regular income tax (top rate 33%), not Act 60's 4% rate. The Act 60 grant covers qualifying service business income paid out of the Act 60 entity, not her W-2 reasonable comp. She also still owes federal payroll tax on the W-2.

The $800K distribution from her Act 60-blessed PR entity is the piece that gets the 4% rate. So her stack looks like:

• $200K W-2 at PR ordinary (effective ~25-28% after PR's tiered rates) ≈ $53K
• $800K Act 60 business income at 4% = $32K
• Federal payroll on $200K W-2 ≈ $15K
• Act 60 annual filing fee + mandatory charitable donation = $15,005 ($5,005 filing + $10,000 donation)

Anna's all-in PR tax bill on $1M: ~$115,000. That is real money, about $215K of annual savings against Wyoming. The savings are concentrated on the K-1 distribution, not the salary. The moment Anna's reasonable-comp split shifts toward more W-2 (which the IRS pushes service businesses to do), the PR advantage erodes.

3. Scenario B: $1M long-term capital gain

Ben sells a position he established after his move, with no pre-move build-up. The whole $1M is post-move, PR-source LTCG. Single filer, no other income.

Wyoming. Federal LTCG at the 20% bracket (which kicks in around $533K single for 2025) on most of the gain, plus 3.8% NIIT. Combined top federal rate: 23.8%. State: 0%. All-in: ~$229,000 (the first ~$50K of LTCG sits in the 15% bracket, so the effective rate is slightly under 23.8%).

Puerto Rico. Act 60 covers post-move PR-source LTCG at 0%. Federal §933 exclusion zeroes out the federal side too, provided Ben was a bona fide resident for the full taxable year. He still owes the $15,005 in annual Act 60 maintenance costs.

Ben's PR savings vs WY: ~$214,000. This is the scenario the marketing slides assume. It is real, but it only works for gains that clear the pre-move build-up rule. Move with $5M of appreciated AAPL from 2018 and most of "your" gain is still US-source and still taxed at the Wyoming rate of 23.8%.

4. Scenario C: $1M mixed (salary + distribution + LTCG)

The most realistic founder profile: some W-2, some K-1, some investment income. Carla's $1M breaks down as $200K W-2, $500K S-corp/Act 60-entity distribution, and $300K post-move LTCG.

Wyoming.

• $200K W-2 at federal ordinary ≈ $40K
• $500K K-1 ordinary ≈ $155K federal (37% top bracket on the upper slice)
• $300K LTCG at 23.8% combined = $71.4K
• Payroll ≈ $15K
• State: $0

WY all-in: ~$281,000.

Puerto Rico.

• $200K PR-source W-2 at PR ordinary ≈ $53K
• $500K Act 60 distribution at 4% = $20K
• $300K post-move PR-source LTCG at 0% = $0
• Federal payroll ≈ $15K
• Act 60 maintenance fees = $15K

PR all-in: ~$103,000.

Savings vs WY: ~$178,000/year. Real, but again concentrated on the distribution and the LTCG. The W-2 piece is roughly a wash.

5. The costs you don't see in the WY vs PR sticker

Wyoming has essentially zero compliance overhead above what you already pay in any state. You file a federal return. That is it.

Puerto Rico's Act 60 is a grant, not a setting on your 1040. It comes with:

• Bona fide residency under IRC §937: the 183-day physical-presence test (or its alternates), the tax-home test, and the closer-connection test. All three must hold every year.
• $10,000 mandatory annual charitable donation to a PR-based 501(c)(3) from an approved list.
• $5,005 annual filing fee to the Office of Industrial Tax Exemption, plus a one-time $750 application fee.
• Real-estate purchase requirement for the individual investor decree (Act 60 Ch. 2 §2022.02): acquire residential real property in PR within two years of the decree's effective date and use it as your primary residence. A reasonable PR home with the move-in requirement reaches ~$300,000 in the metro areas Act 60 movers target.
• Specialized CPA fees: $5K-$15K/year for a competent dual-jurisdiction preparer who handles the federal + PR + §933 sourcing work.
• Move costs and life-friction. Real, not modeled here.

Aggregate the recurring drag: ~$15K of Act 60 maintenance + $10-15K of CPA + opportunity cost on a ~$300K home you would not otherwise own. That comes to roughly $30-50K of "PR overhead" in year one, dropping to maybe $25-30K in steady state. That number eats meaningfully into the Scenario A and C savings, and it is pure overhead in any year you don't realize a big gain.

Wyoming's overhead in the same row: roughly $0.

6. Who should pick which

A rough decision matrix at $1M of income:

Profile	Better fit
W-2 employee, no equity events, $1M salary	Wyoming. Act 60 doesn't cover W-2; PR's ordinary rates are close to federal
S-corp service business, low reasonable comp, high K-1	Puerto Rico. 4% on the distribution is the main advantage
Founder pre-exit, $5M+ unrealized gains built up in US	Neither yet. The pre-move build-up rule means a PR move now mostly buys you 23.8% on those gains. Talk to a real CPA.
Founder pre-exit, gains will accrue after the move	Puerto Rico. This is exactly Scenario B and exactly what Act 60 was designed for
Investor living on qualified dividends from US stocks	Wyoming. Qualified dividends from non-PR companies are US-source; PR doesn't help
Retiree drawing down portfolio, mix of LTCG and divs	Wyoming usually wins once you net Act 60 overhead against a smaller marginal benefit
Anyone unwilling to spend ≥183 days/year in PR	Wyoming. Bona fide residency is the gate to every Act 60 benefit

The shorthand: if your $1M comes through an entity you control and the income accrues after you move, Puerto Rico wins by $150-200K/year net of overhead. If your $1M is wages, dividends, or pre-move gains, Wyoming wins or ties. The Act 60 marketing assumes everyone is in the first bucket. Most movers are not.

Run your own numbers

The tropictax comparison tool runs the WY column and the PR column side-by-side using the same scenario structure as the tables above, with the §933 pre-move/post-move split baked into the LTCG row.

Compare California to Wyoming and Puerto Rico now ▸

If your situation looks like Scenario A or C and you want a sanity check before you call a Puerto Rico CPA, that is the cheapest 90 seconds you can spend on this decision.