By: Tom Andrews, CPA
As a crewmember on a foreign flagged vessel you are probably being paid in one of three ways:
- You are issued a W-2 with taxes withheld.
- You receive a 1099 at the end of the year.
- The employer is simply depositing funds to your bank account without provided a W-2 or 1099.
The purpose of this column is not to opine on the proper payroll procedures of your employer and whether or not the employer is compliant with United States payroll tax law, as this is a discussion between your employer and their attorney/ accountant. By writing this column I am hoping to stress how important it is to prove you were in fact an employee of a foreign employer and a crewmember of a foreign flagged vessel. The importance of this distinction lies in the fact that the IRS and some states exclude from the definition of employment for FICA purposes, services performed on a foreign flagged vessels.
To summarize without the technical language, if you are a crewmember of a foreign flagged vessel you might not have to pay social security and Medicare taxes. In the case of crewmembers doing business through their corporation you might not be responsible for Florida state unemployment tax. While there are advantages and disadvantages to not paying into social security/ Medicare the assumption for the purpose of this column is that you are simply having funds deposited to your bank account without receiving a W-2 or 1099.
Assuming that you have properly filed your tax returns there are situations in which you must prove that you were in fact a crewmember of a foreign flagged vessel, these situations include but are not limited to an IRS audit, state employment tax audit or income verification as part of a home loan. If you are ever faced with having to prove that you were a crewmember of a foreign flagged vessel it will probably occur after you have left the employment of that vessel. Trying to track down documents after you have left a vessel sometimes years after the fact can be difficult, I recommend acquiring these documents prior to leaving the vessel. These document include but are not limited to the following:
- Vessel Certificate of Registry
- Crew manifest on vessel letter head.
- Letter from the employer confirming status as a crewmember of a foreign flagged vessel.
Employment in the yachting industry is not a traditional career. Sometimes outsiders will not understand the differences between this industry and mainstream employment, this makes having supporting documentation all the more important when dealing with individuals who are tasked with understanding the nature of your employment.