by Tom Andrews, CPA
Many yacht crewmembers end up filing extensions to file their tax returns, the most common reason is that crewmembers are normally traveling when the April 15th deadline arrives and filing an extension will give them an extra six months to get organized. Crewmembers should also be aware if they are residents of a state with income taxes as an extension would also be required for the state as well. It should be noted however that an extension to file is NOT an extension to pay the tax due. Federal and State income taxes are required to be remitted as estimated tax payments as the income is earned and the final estimated tax payment is due by January 15th not April 15th.
For those lucky enough to receive a W-2 with taxes withheld from your paycheck this is usually not a problem but for crewmembers working on foreign flagged vessels or those crewmembers receiving a 1099 your employer is likely not withholding any tax from your salary so the burden falls on the yacht crewmember to make quarterly estimated tax payments. The quarterly estimated tax payments are due on the following dates:
First Quarter Due Date April 15th
Second Quarter Due Date June 15th
Third Quarter Due Date September 15th
Fourth Quarter Due Date January 15th
Calculating your estimated tax payments may be a bit more difficult as the amount of taxes to due may be dependent on the flag of the vessel, jurisdiction of the foreign employer, and whether or not you have other sources of income. If you are unable to sit down with your accountant to come up with an accurate estimate I recommend you put aside about 25% of gross income for taxes. The actual tax liability might be more or less depending on your individual situation however 25% is normally a reasonable amount to put aside. If you are a resident of a state that has income taxes I recommend you put aside approximately 5% of income for state tax obligations. The IRS provides several options for remitting your estimated tax payments, the most common way is to print an estimated tax payment voucher and mail the check along with the voucher to the IRS. This method is not always practical for yacht crewmembers that are traveling to remote locations, the good news is that the IRS also offers online options as well. You may go directly to the IRS website at irs.gov to make a wire transfer or you may enroll yourself on the EFTPS.com website, both of which allow you to make payments electronically. If you do mail a check to the IRS make sure you write your social security number on the memo potion of the check and mail the check “certified”.