Substantial Presence Test – Non Resident Crewmembers

By: Tom Andrews, CPA

Nonresident crewmembers have long been at a tax advantage over their American counterparts.  While American’s must report and pay tax on their worldwide income many nonresidents crewmembers reside in countries that allow them to avoid paying tax on their yachting income as long as they declare themselves as a nonresident in their home country.  What many of the nonresident crewmembers do not realize is that they too might be required to declare their yachting income.. not to their own country but to the United States.   This requirement to pay tax might be triggered under the “Substantial Presence Test” (SPT).

You will be considered a US resident for tax purposes if you meet the SPT for the calendar year.  To meet this test you must be physically present in the United States on at least

  1.  31 days during the current year, and
  2. 183 during the 3- year period that includes the current year and the 2 immediately before that, counting:

            All the days you were present in the current year, and
            1/3 of the days you were present in the first year before the current year, and|
            1/6 of the days you were present in the second year before the current year

 There is one notable exception to the SPT and that is for nonresidents working on foreign flagged vessels HOWEVER the intent of that exception was for crewmembers that are working on commercial vessels like cruise ships and cargo ships where they are not allowed to leave the vessel while in the United States. 

 In order to determine whether or not you might owe United States tax under the Substantial Presence Test you will need to look at other factors such as:

  1. Whether or not you qualify for tax treaty benefits, unfortunately most nonresident crewmembers do not qualify for tax treaty benefits because they have declared themselves nonresident filers in their home country.
  2. Whether or not you qualify for the “closer connection” test.

Many crewmembers will find that the SPT adds greater importance when the nonresident is staying in the Unites States with a significant other or they are applying for a green card.  We recommend that if a nonresident crewmember is concerned about the SPT they consult with a tax attorney or CPA.