Dockwalk Magazine. Written by Tom Andrews of AvMar Accounting Services
One of the more enjoyable characteristics of the yachting industry is the ability to work and interact with individuals from all over the world. From an American owners standpoint the ability to hire and pay foreign crewmembers has some very unique challenges, most of these issues I would like to address in a later article however there are some unique rules that the foreign crewmember themselves need to be aware of. Many crewmembers take for granted that their employer or Captain will fill them in on the nature of US tax law however the truth is most Captains and owners don’t have a firm grasp on the filing requirements for nonresident alients.
As a rule of thumb if income from labor or services performed in the United States is free from federal taxation if several conditions apply. First, you were not present in the USA for more than 90 days during the tax year. Second, you earned, in total, less than $3,000 from the US-based work. Third, you are an employee of, or under contract with, a foreign person not engaged in a business in the USA; a US person, if the services are performed for the US person’s office overseas; or a foreign office of an agency of the US government. If these three conditions are satisfied, your income is not US-source income and it is not subject to federal tax.
The $3,000 compensation cap does not include funds you receive from your employer for travel expenses. The $3,000 cap also does not include pension or retirement payments from services performed in the United States.
The United States has negotiated tax treaties with many countries. Some of these treaties allow for an income ceiling above $3,000 or a length of stay limitation beyond 90 days. Fortunately many of the foreign yachting professionals are from countries that enjoy flexible tax treaties with the United States, these countries include Australia, Canada, New Zealand, South Africa, and the United Kingdom, these treaties generally allow for an income ceiling of $10,000 and a stay limitation of 180 days. If you are curious about your tax treaty you can log onto the IRS website at irs.gov and download Publication 901. This publication details all countries that enjoy tax treat benefits with the United States.
If you have any further questions please contact us at Avmar Accounting and Payroll Services.
Tom Andrews, CPA