Crewmember Taxation - OCS
Special income and social tax rules apply to the crewmembers of foreign vessels working in US waters. Crewmembers involved with international transportation enjoy broad exemptions not available to those who work with exploration and production activities.
The foreign vessels' activities, rather than the crewmembers', determine which tax rules apply. For example, the navigator aboard a construction barge would be taxed in a different manner from the navigator aboard a container ship. The same holds true for other occupations including mariners, catering crew, etc.
Nonresident alien crewmembers working on foreign vessels involved with international transportation may qualify for a specific exemption from income taxation. These individuals typically hold a C or D series visa.
Crewmembers aboard vessels involved with exploration and production activities are not exempt from US income tax. Their compensation is considered "effectively connected with a US trade or business" and reportable in the states. The place where wages are paid or the payroll company located are irrelevant for these purposes. These individuals typically hold an OCS endorsement to a B series visa.
The exemptions for shipping or international transportation under many tax treaties do not apply to E&P activities. The costs for most crewmembers are often charged to a branch or other business in the states so dependent personal services or employment treaty exclusions may also not apply. The UK, Norway and Netherlands treaties all contain offshore activities clauses that may further limit treaty benefits based on time spent in the US. The treaty with Canada has special provisions governing crewmember taxation.
US social taxes such as FICA may or may not apply to a crewmember's compensation. The nationality of the vessel and employer are important factors in this determination. Whether or not the individual works aboard the vessel while outside US waters is important as well.
US wage reporting and withholding requirements apply to the employers of foreign crewmembers working OCS as noted in General Counsel Memo CCA 201027046 - Section 638 - Continental Shelf Areas. This position was confirmed in Industry Director’s Directive # 2—Employment Tax and the Employees on the U.S. Outer Continental Shelf.
There are practical difficulties implementing these requirements which we would be pleased to discuss with you. The IRS has increased scrutiny of foreign vessels working in US waters as noted in Industry Director's Directive #1 - United States Outer Continental Shelf Activity.
The above is a general discussion on work performed in US waters (the "200 mile limit.") These services are usually performed in the Gulf of Mexico (GOM) but apply to other federal waters as well. Additional rules may apply to vessels engaged in state waters.
- Employer Questions
- ►Short Term Assignments
- ►Tax Attributes of Specific Visas
- ►Certifying Acceptance Agent
- ►Crewmember Taxation - OCS
- General Tax Questions
- ►Tax Return Filing Requirements
- ►Number of Days in the US
- ►Tax Residence
- ►Year of Arrival or Departure
- ►Substantial Presence Test
- ►Personal/Dependent Exemptions
- Other Resources and Forms
- ►Foreign Nationals Book by John Allis
- ►Reference Sources
- ►Links to other Websites
- ►Foreign Nationals Tax Forms