By Tom Andrews, CPA

As COVID-19 continues to disrupt the cruising plans for luxury yachts and their crewmembers there have been unintended consequences for vessels that remain in the United States longer than planned.  One of these consequences is that some nonresident crewmembers have triggered a tax liability by staying in the United States past the time their corresponding “tax treaty” would have allowed.   As management companies try to keep their crew in compliance with United States tax law some have requested crewmembers to provide a “Taxpayer Identification Number” otherwise known as an “ITIN”.  A taxpayer identification number is an identifying number used for tax purposes in the Unites States and these numbers may be assigned by the Social Security Administration or the Internal Revenue Service. 

The reason ITIN’s are important is that they are required for any crewmember that is requesting tax treaty benefits.  By qualifying for a tax treaty benefit the foreign employer can avoid having to withhold tax from that nonresident crewmember as long as the crewmember is in compliance with the provisions of that treaty.  In some cases a fully executed tax treaty will allow foreign employer to avoid withholding tax for services provided in the United States for up to 183 days.  When a nonresident crewmember asserts tax treaty benefits they will complete a form 8233 using their TIN.  After this form is provided to the employer the employer will fax or mail a copy of the form to the IRS, as long as this form is not rejected then the foreign employer may process payroll for the crewmember and avoid having to withhold federal income tax from the nonresident.

There are several steps to apply for a tax payer identification number, these steps include completing the form W-7 (Application for Individual Taxpayer Identification Number).  After this form is completed the nonresident must have their passport authenticated.  After both of these steps are completed the nonresident must then travel to a social security office and request a “social security denial letter”.  This letter along with the authenticated passport, forms W-7 and 8233 or forwarded to the IRS by the foreign employer.

The number of steps involved in this process can be onerous however we have successfully assisted a number of crewmembers in completing these steps so that they can properly claim the tax treaty benefits afforded to them.  Another option that helps move this process along is to have your passport “certified” by the issuing agency.  This is NOT a notarized copy of your passport it is a copy that is certified by your embassy, consulate or the passport agency in your home office.   If you have yet to join a vessel and are in your home country making your arrangements I would recommend you visit an issuing agency so that you can get a few copies of a certified passport.   In most cases the certification will include the countries seal or stamp affixed to a copy of the passport.   The complete instructions for this process can be found at irs.gov/instructions/iw7

One of the concerns among nonresidents is that by submitting paperwork to the IRS that their information will be “shared” with their home country.  The only time this should be a concern is if you feel that you are violating the tax laws of your home country and if that is the case you should probably consult with a  tax attorney in your own country to make sure you are in compliance.