By: Tom Andrews
After much debate and anticipation, Congress has passed the American Taxpayer Relief Act of 2012 which averts the tax side of the fiscal cliff, provides numerous extenders and avoids the automatic sunset provisions that were scheduled to take effect after 2012 under the “Bush-era” tax cuts in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA).
Most crew will be asking “What does this mean to me? And how will I be affected? I have had an opportunity to review these changes and from what I can tell there should not be a significant impact on the average crew-member. The most significant change that will affect crew will be the increase of social security tax from 4.2% to 6.2%, this increase is simply a return of what the rates were prior to 2011. This change will obviously affect crew working on American flagged vessels however this change will not affect many crewmembers on foreign flagged vessels because social security is withheld on these vessels in limited circumstances. If a crewmember has a question as to the amount of payroll tax being withheld they should contact their yacht crew payroll company.
The changes that everyone seems to be talking about are the tax increases on those earning more than $400,000 per year. Since the average crewmember earns much less than $400,000 per year we again do not expect there to be a significant impact on the yacht crew community. If a crewmember has significant passive income from interest, dividends, capital gains, or trusts they may want to do some tax planning with an accountant before the end of 2013 to ensure that their income does not cross the 400K threshold.
The changes I have mentioned above are the most talked about and controversial tax increases, there are a whole host of other changes that may affect the average taxpayer, these include:
Capital Gains Rate Increase
Permanent Extension of the Alternative Minimum Tax Patch
Personal Exemption Phase Outs
Adoption Credit Assistance
Child and Dependent Care Credits
Child Tax Credit
The above changes and increases should not materially affect the average crewmember as most crew members do not have dependents nor do they have significant capital gains/passive income. There are always exceptions and this column is not long enough to thoroughly discuss all tax implications of the American Taxpayer Relief Act of 2012. If you are a crewmember that has specific questions or feel that your income may be subject to these increased tax rates we recommend you speak with your accountant or CPA to do a detailed analysis.