by Tom Andrews, CPA
Social Security tax is a tax that is assessed on your earnings/labor, this tax is withheld by your employer and remitted to the IRS. The difference between Social Security tax and federal income tax is that Social Security/Medicare tax is used to provide benefits to individuals when they reach 65, federal income taxes are used to provide for various national programs such as (a) national defense; (b) maintaining highways and bridges; (c) various social programs etc. Most land based employees do not give social security tax a second thought as it is in most cases automatically deducted from their wages and remitted to the IRS, yacht crewmembers on the other hand need to pay very close attention to whether or not Social Security and Medicare is being deducted.
Some foreign flagged vessels will issue a W-2 without any Social Security and Medicare tax being withheld! How can this be? Isn’t my employer required to withhold Social Security and Medicare? The answer to that question is MAYBE… depending on the corporate structure of the foreign employer it is possible that the employer is not required to withhold Social Security and Medicare. In this case you will simply receive a W-2 with only federal tax withheld and nothing calculated for Social Security and Medicare. Some crewmembers will find this advantageous because they are paying less tax, some crewmembers find this bothersome because they are not receiving any credits for Social Security and Medicare. In any case it is important that you are aware of these differences because many lenders and accountants are not aware of this exemption which leads to questions when you present your W-2 to acquire a loan or complete your yearend taxes.
Making matters more complicated is the fact that some older crewmembers have worked on foreign flagged vessels their entire life and have not paid one dime into the system, every year we have a hand full of clients that have reached the age where they want to collect Social Security only to find out they have very little benefits coming to them. The Social Security Administration used to mail out yearly statements detailing each taxpayers work history and expected benefits due to budget cuts these statements are only available online at SSA.gov. I encourage all yacht crewmembers to run their own wage history report periodically as a means track and verify the accuracy of your accrued benefits.
On a final note, I have spoken to many younger crew members that take a pessimistic view as to whether or not the Social Security Trust Fund will be solvent by the time they reach the age of collectability. I personally believe that the Social Security Trust Fund will be solvent or made solvent for those workers in the work force today, there are a few changes albeit controversial that can be made today to workers not even in the work force yet that would sure up the trust fund for generations to come.