By Tom Andrews, CPA
As a Certified Acceptance Agent I am often asked to explain why a crewmember may need an ITIN and the process for obtaining an ITIN.
Nonresident yacht crewmembers who receive U.S.-sourced income are often subject to U.S. tax reporting and withholding rules. For individuals who are not eligible for a Social Security Number, the Internal Revenue Service (IRS) requires an Individual Taxpayer Identification Number (ITIN) in order to properly file nonresident tax returns and claim treaty benefits.
What Is an ITIN?
An ITIN is a tax processing number issued by the IRS to individuals who do not qualify for a Social Security Number but still have U.S. tax filing or reporting obligations. This includes many nonresident yacht crewmembers whose wages or contract income are considered U.S.-sourced.
Why Is an ITIN Required?
- Filing Nonresident Tax Returns
An ITIN is necessary to file Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Without an ITIN, a nonresident cannot properly submit a return, which may result in IRS penalties, delays in refund processing, or compliance issues affecting future U.S. work or travel.2. Claiming Tax Treaty Benefits
The United States maintains tax treaties with numerous countries that may reduce or exempt certain categories of income from U.S. taxation. In order to claim these benefits on Form 8233 or Form W-8BEN, the IRS requires the individual to have a valid ITIN. Without one, withholding agents are obligated to withhold at the statutory 30% rate.3. Preventing Excess Withholding
In the absence of an ITIN, U.S. payers often must default to maximum withholding. This can create significant cash flow issues for nonresident crew, who may only recover the excess withholding by later filing a return—something that cannot be done without first obtaining an ITIN.
Practical Considerations
The ITIN application process involves submitting Form W-7 with supporting identification documents. Certified Acceptance Agents (CAAs) are authorized by the IRS to assist in preparing and verifying applications, which can streamline the process and reduce the risk of rejection. For yacht crewmembers frequently working internationally, using a CAA can eliminate the need to mail original passports to the IRS.