Finance

COVID Tax Consequences for Yacht Crew

1 November 2020 By Tom Andrews
Illustration of people with masks on

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

One of the unintended consequences of the pandemic is that nonresident crew may end up staying in the States longer than expected. In some cases, nonresident crew may end up triggering a U.S. income tax liability due to their days present inside the States. Nonresidents are generally liable for income tax for days worked while present in the country. One of the income tax exceptions available to crew is when they qualify for tax treaty exemption between the U.S. and their own country.

Some of the countries that have tax treaties with the U.S. include the UK, Australia, France, and South Africa. Many of these treaties allow the employer to exempt wages that are earned by a resident of the treaty-partner country where (i) the employee is physically present in the U.S. on fewer than 183 days during any 12-month period that begins or ends during the taxable year in question, (ii) the employer isn’t a resident of the U.S., and (iii) the employer does not maintain a permanent establishment in the U.S. that bears the cost of the wages. In order for the employer to exclude crew wages, that nonresident crewmember must present a properly executed Form 8233.

The most common reason why nonresident crew might not qualify for a tax treaty exemption is that they aren’t considered a resident filer in their home country. The general rule is that if you’re declaring paying taxes on your worldwide income to your country of residency, you’ll probably qualify for a treaty-based exemption.

Our office has received multiple phone calls from owners and crew concerned about the tax consequences for crew who have been “stuck” in the U.S. due to quarantine or the inability of the vessel to leave the States. According to Revenue Procedure 2020-20, the Treasury and IRS have given short-term relief to individuals who did not anticipate staying in the U.S. for a period of time that would otherwise trigger the “substantial presence test” or disqualify an income tax treaty position. Those benefiting from the relief who aren’t U.S. residents at any point in 2020, who are present in the United States on each of the individual’s COVID-19 “emergency period” (generally defined as a 60-day period between February 1 and April 1) may exclude those 60 days as being present in the U.S.

The IRS may not grant the 60-day waiver if the crewmember didn’t leave the U.S. when first given the chance. Many vessels may have been prohibited from leaving the marina in the country; however, nonresidents may have had the option to go home.

If anyone has any questions regarding IRS COVID relief, consult with your tax attorney/CPA regarding any technical questions you may have. Nonresident crew should also keep in touch with a tax professional in their home country.

This column originally ran in the November 2020 issue of Dockwalk.

 

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