Finance

Benefits of A Taxpayer Identification Number As Nonresident Crew

9 December 2020By Tom Andrews
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Written by

Tom Andrews

This tax advice is not intended, and cannot be used, to avoid any penalties as a result of taking any position from this column. Thomas Andrews is a CPA and a principal of AvMar Accounting Services. +1 954 764 0404; www.avmaraccounting.com

Since COVID-19 continues to disrupt the luxury yachting industry, there’ve been unintended consequences for vessels staying in the United States longer than planned. One such consequence is that nonresident crew may trigger a tax liability by staying in the U.S. past what their corresponding “tax treaty” allows. As management companies try to keep their crew in compliance with United States’ tax law, some have requested crewmembers to provide an Individual Taxpayer Identification Number otherwise known as an ITIN. A taxpayer ID number is an identifying number used for tax purposes in the U.S. and these numbers may be assigned by the Social Security Administration or the IRS.

ITINs are required for any crewmember requesting tax treaty benefits. By qualifying for this, the foreign employer can avoid withholding tax from nonresident crew as long they’re in compliance with the treaty’s provisions. In some cases, a fully executed tax treaty will allow foreign employers to avoid withholding tax for services provided in the States for up to 183 days.

When a nonresident crewmember asserts tax treaty benefits, they’ll complete Form 8233 using their ITIN. After this form is provided to the employer, the employer will send a copy of the form to the IRS — as long as this form isn’t rejected, then the foreign employer may process their payroll and avoid having to withhold federal income tax from the nonresident.

ITINs are required for any crewmember requesting tax treaty benefits. By qualifying for this, the foreign employer can avoid withholding tax from nonresident crew as long they’re in compliance with the treaty’s provisions.

There are several steps to apply for a taxpayer identification number, including completing Form W-7 (Application for Individual Taxpayer Identification Number). Next, the nonresident must have their passport authenticated. After both of these steps are completed, they must 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, are forwarded to the IRS by the foreign employer. The number of steps involved in this process can be onerous, but we’ve successfully assisted many crew completing these steps in order to claim the tax treaty benefits.

Have your passport certified by the issuing agency if you want to move the process along. This is NOT a notarized copy of your passport — it’s a copy that’s 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, visit an issuing agency so that you can get a few copies of a certified passport. In most cases, the certification will include the country’s seal or stamp affixed to a copy of the passport. The complete instructions for this process can be found at www.irs.gov/instructions/iw7.

By submitting paperwork to the IRS, nonresidents may fear having their information shared with their home country. The only time this should be a concern is if you’re violating the tax laws of your home country. If that’s the case, consult with a tax attorney in your own country to make sure you’re in compliance.

This article originally ran in the December 2020 issue of Dockwalk.

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