Many yacht crewmembers end up filing extensions to file their tax returns and the most common reason is that crew are normally traveling when the April 15 deadline arrives and filing an extension gives them an extra six months to get organized. Crewmembers should also be aware that if they are not Florida residents, they might have a state extension requirement as well. It should be noted, however, that an extension to file is not an extension to pay the tax due. Federal and state income taxes are required to be remitted as estimated tax payments as the income is earned and the final estimated tax payment is due by January 15, after the year ends — not April 15.
For those fortunate enough to receive a W-2 with taxes withheld at the source, this is usually not an issue but for crew working on foreign-flagged vessels or those receiving a 1099, your employer is likely not withholding any tax from your salary, so the burden falls on the crewmember to make quarterly estimated tax payments. These quarterly estimated tax payments are generally due on the following dates:
First quarter: due April 15
Second quarter: due June 15
Third quarter: due September 15
Fourth quarter: due January 15
Please note that if the 15th falls on a weekend or federal holiday, the due date may fall on the next business day. You may confirm on the IRS website at irs.gov.
Calculating your estimated tax payments may be a bit more difficult as the amount of taxes due may be dependent on the vessel’s flag, the foreign employer’s jurisdiction, and whether you have other income sources. If you are unable to sit down with your accountant to come up with an accurate estimate, I recommend you put aside about 25 percent of your gross income for taxes. The actual tax liability might be more or less, depending on your individual situation; however, 25 percent is normally a reasonable amount to put aside.
If you’re a resident of a state that has income taxes, I recommend you set aside approximately five percent of income for state tax obligations.
The IRS provides several options for remitting your estimated tax payments, but the most common is to print an estimated tax payment voucher and mail the check along with the voucher to the IRS. This method is not always practical for crew who are traveling to remote locations, but the good news is that the IRS also offers online options.
You may go directly to irs.gov to make a wire transfer or you may enroll yourself on the Electronic Federal Tax Payment System website (EFTPS.com), both of which allow you to make payments electronically. If you do mail a check to the IRS, make sure you write your Social Security number on the check’s memo portion and mail the check certified.
This article originally ran in the January 2023 issue of Dockwalk.