FAQ Pages

Frequently Asked Questions about Payroll and Accounting for Yachts
Yacht Management Payroll FAQ
Q. I am working on a foreign flagged vessel, why am I having tax withheld from my salary?

A. Even though the vessel is “foreign flagged” the owner is still required to withhold federal tax from the wages of US citizens and resident aliens. It doesn’t matter if the vessel is in US territorial waters or outside of US territorial waters.

Q. Am I required to pay tax when the vessel is cruising outside US territorial waters?

A. US citizens and residents aliens are required to report their worldwide income, it does not matter where that income was earned or where that income is deposited.

Q. How come Social Security and Medicare (FICA) tax is not being withheld from my salary?

A. Depending on the corporate structure of the vessel you may only be having federal tax withheld from your salary and not FICA. If FICA is not being withheld from your salary it has been determined that the corporate structure of the vessel is such that FICA tax is not required to be withheld.

Q. Are there any exceptions in which taxes will not be withheld?

A. Yes there are exceptions. In limited circumstances a crewmember may be doing business as a “corporation” or “LLC”. In those situations the vessel is not required to withhold tax. There are a number of factors that dictate if an owner will pay a crewmembers “corporation” or “LLC” and those factors are considered on a case by case basis.

Q. What does AvMar do with the taxes withheld from our paycheck?

A. AvMar is required by law to transmit your taxes to the Internal Revenue Service every month.

Q. I have worked on foreign flagged vessels my entire career and I have never had taxes withheld from my salary, why now?

A. Times are changing, for the most part the yachting industry has remained relatively untouched by US taxing authorities, and this has fostered a sense of complacency among owners. The IRS has increased their international enforcement budget by 25% and audits are coming. As a payroll processor it is our responsibility to keep the owner in compliance with US payroll tax laws.

Non-Resident Crewmembers FAQ
Q. I am a non-resident working on a foreign flagged vessel, why am I having tax withheld from my salary?

A. United States tax law requires that non-residents working on foreign flagged vessels have tax withheld from their salary while that vessel is cruising in US territorial waters. Circumstances may vary from vessel to vessel, if taxes are being withheld from your salary then our analysis has determined it is necessary to withhold tax.

Q. What does AvMar do with the taxes withheld from our paycheck?

A. AvMar is required by law to transmit your taxes to the Internal Revenue Service every month.

Q. Are there any exceptions where I won’t have to have taxes withheld?

A. Yes there are exceptions. Taxes are not required to be withheld while the vessel is cruising outside United States territorial water. Also in many cases if you are a resident filer in another country there may be  tax treaty benefits available. Many tax treaties permit nonresidents to work inside the United States for less than 183 days without the vessel being required to withhold tax. The catch is in many cases you MUST be a resident filer and file taxes as a resident of another country, if you are not a resident filer you will not qualify for tax treaty benefits.

Q. I have worked on foreign flagged vessels my entire career and I have never had taxes withheld from my salary, why now?

A. Times are changing, for the most part the yachting industry has remained relatively untouched by US taxing authorities, this has fostered a sense of complacency among owners. The IRS has increased international enforcement budget by 25% and audits are coming.

Q. Am I required to file a tax return in the United States?

A. In my experience most crewmembers do not file tax returns in the United States. If at the end of the year you determine that taxes were withheld from your salary while you were working on the vessel cruising outside the United States then you will want to file a tax return in order to have those taxes refunded back to you.

Q. How do I file a tax return?

A. AvMar has an agreement with many of the vessels in which we will prepare a basic non-resident tax return for you at no charge.

Q. Will filing a tax return violate my immigration status?

A. Our responsibility is tax compliance, we are not immigration attorneys. It is our understanding that filing a tax return does not raise red flags with immigration nor should it because they are two completely different compliance issues. If you are concerned about your legal status in the United States we will be happy to refer you to an immigration attorney.

Yacht Management Payroll and Tax FAQ
Q: What is the tax treatment of nonresident crew on foreign flagged vessels?

A:  Owners are required to withhold federal tax from nonresident crewmembers while that vessel is cruising in US territorial waters. Federal withholding might not be required if the nonresident crewmember qualifies for tax treaty benefits. If the nonresident qualifies for tax treaty benefits the length of time that the nonresident may be in US territorial waters without tax being withheld is determined by the tax treaty of that country. 

Q: What is the tax treatment of American resident crew working on foreign flagged vessels?

A:  The owner is required to withhold taxes from resident crewmember employees on foreign flagged vessels at all times. It does not matter whether or not the vessel is cruising in US territorial waters or whether or not the payroll is processed through a foreign corporation. In addition FICA tax may or may not be required to be withheld. The withholding of FICA depends on the structure of the foreign employer/company and is handled on a case by case basis.

Q: What is the tax treatment of resident crew and nonresident crew working on US flagged vessels?

A: Working for a US flagged vessel is similar to working for a US company, you must be legal to work in the United States and full federal tax withholding is required. There may be very limited situations in which a nonresident may work on a US flagged vessel, we recommend you consult with both an immigration attorney and maritime attorney to insure the vessel is in compliance with immigration law and the “Jones Act”.

Q: What are the tax consequences to nonresidents if the vessel is in US territorial waters for less than 183 days?

A:  A common industry myth is that if the vessel is cruising US territorial waters for less than six months the vessel is not required to withhold tax from nonresidents. It is possible that if a nonresident crewmember qualifies for tax treaty benefits and they are in the United States for less than six months the vessel is not required to withhold tax. Withholding of tax from nonresident crewmembers must be considered on a case by case and careful review of that crewmembers respective tax treaty must be completed to insure compliance. If the nonresident crewmember does qualify for tax treaty benefits the appropriate forms must be completed by that crew member and filed.

Q: Who is responsible for withholding the income tax and FICA tax?

A:  The withholding agent/payroll processer is responsible for the withholding of income taxes and FICA. It does not matter if the payroll has been processed offshore or by a foreign corporation. In addition the withholding agent/payroll processer and or officer of the employer can be held personally responsible for taxes that are not withheld and remitted. Another myth in the industry is that shifting the payroll offshore relieves the owner of payroll tax withholding responsibility.