Most nonresident crewmembers working in the United States or U.S. territorial waters have an income tax filing requirement. While they might not owe tax, there are certain reporting responsibilities that cannot be avoided. As management companies try to keep their crew in compliance with U.S. tax law, some have requested crewmembers provide an individual taxpayer identification number, or ITIN. This is used for tax purposes in the States and may be assigned by the Social Security Administration or the Internal Revenue Service.
The ITIN is important because it’s required for any crewmember requesting tax treaty benefits. A fully executed tax treaty will allow foreign employers to avoid withholding tax for services provided in the United States for up to 183 days. When a nonresident crewmember asserts tax treaty benefits, they will complete a Form 8233 using their ITIN. After this form is provided to the employer, the employer will fax or mail a copy to the IRS. If this form is not rejected, the foreign employer may process payroll for the crewmember and avoid having to withhold federal income tax from the non-resident.
There are several steps to apply for a taxpayer identification number, including completing Form W-7 (Application for Individual Taxpayer Identification Number). After this form is completed, the nonresident must have their passport authenticated. After both steps, the nonresident must then 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, should be forwarded to the IRS by the foreign employer.
The steps involved in this process can be onerous; however, we have successfully assisted several crew so they can properly claim the tax treaty benefits afforded to them. Another option that helps expedite this process is to have your passport “certified” by the issuing agency. This is NOT a notarized copy of your passport; it’s a copy certified by your embassy or the passport agency in your home country. If you have yet to join a vessel and are in your home country making arrangements, I recommend visiting an issuing agency so 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 processes’ complete instructions can be found at irs.gov/instructions/iw7.
One concern among nonresidents is that submitting paperwork to the IRS means their information will be shared with their home country. The only time this should be a concern is when the taxpayer is violating the tax laws of their home country or the United States. It is always the individual’s responsibility to ensure they’re in compliance with the tax laws of any country they visit.
This article was originally published in the August 2023 issue of Dockwalk.