Yacht Management Payroll & Tax FAQ
Q: What is the tax treatment of nonresident crew on foreign flagged vessels?
A: Owners are required to withhold federal tax from nonresident crewmembers while that vessel is cruising in US territorial waters. Federal withholding might not be required if the nonresident crewmember qualifies for tax treaty benefits. If the nonresident qualifies for tax treaty benefits the length of time that the nonresident may be in US territorial waters without tax being withheld is determined by the tax treaty of that country.
Q: What is the tax treatment of American resident crew working on foreign flagged vessels?
A: The owner is required to withhold taxes from resident crewmember employees on foreign flagged vessels at all times. It does not matter whether or not the vessel is cruising in US territorial waters or whether or not the payroll is processed through a foreign corporation. In addition FICA tax may or may not be required to be withheld. The withholding of FICA depends on the structure of the foreign employer/company and is handled on a case by case basis.
Q: What is the tax treatment of resident crew and nonresident crew working on US flagged vessels?
A: Working for a US flagged vessel is similar to working for a US company, you must be legal to work in the United States and full federal tax withholding is required. There may be very limited situations in which a nonresident may work on a US flagged vessel, we recommend you consult with both an immigration attorney and maritime attorney to insure the vessel is in compliance with immigration law and the “Jones Act”.
Q: What are the tax consequences to nonresidents if the vessel is in US territorial waters for less than 183 days?
A: A common industry myth is that if the vessel is cruising US territorial waters for less than six months the vessel is not required to withhold tax from nonresidents. It is possible that if a nonresident crewmember qualifies for tax treaty benefits and they are in the United States for less than six months the vessel is not required to withhold tax. Withholding of tax from nonresident crewmembers must be considered on a case by case and careful review of that crewmembers respective tax treaty must be completed to insure compliance. If the nonresident crewmember does qualify for tax treaty benefits the appropriate forms must be completed by that crew member and filed.
Q: Who is responsible for withholding the income tax and FICA tax?
A: The withholding agent/payroll processer is responsible for the withholding of income taxes and FICA. It does not matter if the payroll has been processed offshore or by a foreign corporation. In addition the withholding agent/payroll processer and or officer of the employer can be held personally responsible for taxes that are not withheld and remitted. Another myth in the industry is that shifting the payroll offshore relieves the owner of payroll tax withholding responsibility.