Foreign Crew Tax

Vessel Crew Tax – Foreign Personnel Working in US Waters

Crew Payroll Taxes

Foreign nationals working in US waters are subject to US payroll taxes as with any other individual working in the US. The primary taxes applicable to crewmembers are income, FICA and unemployment taxes. There are special rules and exceptions that may apply to these crewmembers as discussed below.

Income Taxes – W-2

A nonresident alien is subject to federal income tax withholding under special NRA rules. These rules mandate use of the Single/Married Filing Separate rates and add back the deductions built into the standard withholding tables.

See the Form W-4 instructions for how a nonresident alien should complete this withholding certificate. Also see Notice 1392 for the supplemental instructions applicable to nonresidents. These NRA rules will typically result in excess income tax withholding which may only be claimed back by filing a tax return.

Income Taxes – 1042-S

Crew expecting to have treaty exempt wages should have 30% income tax withheld on Form 1042-S unless 1) an application was made with the IRS on Form 8233 to have the wages exempt from withholding, and 2) a taxpayer number is shown on that form. See Forms 1042-S and 8233 for the current withholding rate and other instructions.

FICA

Social security tax and Medicare tax comprise the FICA taxes. Additional Medicare tax may also apply to higher paid personnel. Both the employer and employee pay the same amount of these taxes.

A special exemption from FICA may apply for certain crewmembers working in US waters. A key factor in this qualification is based on whether or not the person works on the vessel when it is in and outside of US waters. See Sec. 3121(b)(4) and the related regulations for the details to see if your crew qualify.

A totalization agreement may provide for an exemption from FICA taxes. If the above exemption does not apply, be sure to put a copy of the certificate of coverage in your US payroll taxes files in case of audit.

Unemployment Taxes

Only the employer pays unemployment taxes (called FUTA) in the US. A similar exemption to the FICA provision may apply to your crew. See Sec. 3306(c)(4) and the related regulations for details.

Coverage under a totalization agreement does not exempt an employer from unemployment taxes although Canada and the US do have an agreement specifically covering these taxes.