US Citizen and Resident Crewmembers FAQ

US Citizen and Resident Crewmembers FAQ

Q. I am working on a foreign flagged vessel, why am I having tax withheld from my salary?

A. Even though the vessel is “foreign flagged” the owner is still required to withhold federal tax from the wages of US citizens and resident aliens. It doesn’t matter if the vessel is in US territorial waters or outside of US territorial waters.

Q. Am I required to pay tax when the vessel is cruising outside US territorial waters?

A. US citizens and residents aliens are required to report their worldwide income, it does not matter where that income was earned or where that income is deposited.

Q. How come Social Security and Medicare (FICA) tax is not being withheld from my salary?

A. Depending on the corporate structure of the vessel you may only be having federal tax withheld from your salary and not FICA. If FICA is not being withheld from your salary it has been determined that the corporate structure of the vessel is such that FICA tax is not required to be withheld.

Q. Are there any exceptions in which taxes will not be withheld?

A. Yes there are exceptions. In limited circumstances a crewmember may be doing business as a “corporation” or “LLC”. In those situations the vessel is not required to withhold tax. There are a number of factors that dictate if an owner will pay a crewmembers “corporation” or “LLC” and those factors are considered on a case by case basis.

Q. What does AvMar do with the taxes withheld from our paycheck?

A. AvMar is required by law to transmit your taxes to the Internal Revenue Service every month.

Q. I have worked on foreign flagged vessels my entire career and I have never had taxes withheld from my salary, why now?

A. Times are changing, for the most part the yachting industry has remained relatively untouched by US taxing authorities, and this has fostered a sense of complacency among owners. The IRS has increased their international enforcement budget by 25% and audits are coming. As a payroll processor it is our responsibility to keep the owner in compliance with US payroll tax laws.