By; Tom Andrews, CPA

One of the unintended consequences of the COVID 19 global pandemic is that nonresident crewmembers may end up staying inside the United States longer than expected.  In some instances that nonresident crewmember may end up triggering a United States income tax liability due to their days present inside the Untied States.   Nonresidents are generally liable for income tax for days worked while present inside the United States.  One of the income tax exceptions available to a crewmember is when they qualify for tax treaty exemption between the United States and their own country.

Some of the countries that have tax treaties with the United States include but are not limited to United Kingdom, Canada, Australia, New Zealand, France, and South Africa. Many of these treaties allow the employer to exempt wages that are earned by a resident of the treaty-partner country where (i) the employee is physically present in the United States on fewer than 183 days during any 12 month period that begins or ends during the taxable year in questions: (ii) the employer is not a resident of the United States and (iii) the employer does not maintain a permanent establishment in the Untied States which bears the cost of the wages. In order for the employer to exclude crewmember wages that nonresident crewmember must present the employer a properly executed form 8233.  The most common reason why a nonresident crewmember might not qualify for a tax treaty exemption is that the crewmember is not considered a resident filer in their home country.  The general rule of thumb is that if you are declaring any paying tax on your worldwide income to your country of residency you probably will qualify for a treaty based exemption.

Our office has received multiple phone calls from owners and crewmembers concerned of the tax consequences for crewmembers that have been “stuck” inside the United States due to quarantine or the inability of the vessel to leave the United States.    According to Revenue Procedure 2020-20 the Treasury and IRS have given short-term relief to individuals who did not anticipate staying in the United States for a period of time that would otherwise trigger the “substantial presence test” or disqualify an income tax treaty position.  Those benefiting from the relief who are not US residents at any point in 2020, who are present in the United States on each of the individuals COVID 19 “emergency period” (generally defined as a 60 day period between February 1st 2020 and April 1st 2020)  may exclude those 60 days as being present in the Untied States.  The full text of this procedure can be found at the IRS website at irs.gov.

It should be noted that not all crewmembers may qualify for this exemption.  Our concern is that the IRS would not grant the 60 days waiver if the crewmember did not immediately leave the United States given their first opportunity.  Many vessels may have been prohibited from leaving the marina in the United States  however the nonresident may  still have had the option to exit the United States and return to their home country. 

If a crewmember, owner or management company has any questions regarding the IRS COVID relief we recommend they consult with their tax attorney/CPA regarding any technical questions they many have.  I would also recommend nonresident crewmembers keep in touch with a tax professional in their home country.