Noob Question Alert: Do Mariners Pay Taxes?


#21

Are there any US flag vessels that only work international water other than pre-pos? And I imagine that pre-pos are out of the question for this particular plan anyway.


#23

The only legal way to avoid taxes is to die, as far as I know. (Unless there is inheritance tax)

If you take up legal residence in another country you can avoid taxes in your home country, (unless you are American) but you have to pay taxes in your country of residency.

Since the US tax by citizenship, not just residents, you cannot escape US taxes by moving either. If you renounce your US citizenship and are granted another citizenship, you MAY escape US taxes. Although it appears that anybody born in the US is regarded as US citizens, whether they know it or not.
Boris Johnson, ex British Foreign Minister, was born in NYC but never held a US passport. He was forced to pay US tax on profit from a house sale in UK:

PS> Oh, I wouldn’t help if you marry a Prince or a Princess either apparently:


#24

foreign income not taxable in Singapore so for mariners living there if you fly out to work on a vessel you are exempt
I know lots of mariners also live in singapore on tourist visa but as they come and go hence fit inside the time limits


#25

Yes, those who work for wages and are US citizens must file and pay taxes if owed. However, if you do not work for wages subject to withholding taxes there are options, such as forming a LLC to avoid taxes. One can form a LLC in the USA and in certain states like Nevada, Wyoming, South Dakota etc they protect ones identity and therefore it is possible to avoid taxes as an individual. The USA is well known as a tax haven for those who can afford the legalities, much as the City of London, Cayman Islands etc are known. However if you work for wages and subject to withholding tax your hands are tied. Best to work as an independent contractor.


#26

Funny thing is, I went and filed CA taxes to get my refund. When I did the calculations, I called my (now late) father who worked for the Franchise Tax Board in California. . . When calculating the applicable tax, California doesn’t just tax you on the money you make in California. . .noo way. . .they tax you on the percentage of your income earned in California when compared to your total income. . . . which meant that I would have gotten a refund of $.07. . . .I passed. . . My father told me that it is geared more toward getting money from the entertainment industry. . .


#27

That is correct, income earned from foreign sources are not taxable in Singapore, even if you don’t leave Singapore.

Singaporeans, PRs or Employment Pass holders residing in Singapore are liable for income tax, but if they spend 183 days or more outside the country they are tax free.

This applies to seafarers, even if they serve on Singapore flag ships, or on foreign ships but are paid in Singapore by a Singapore company.


#28

To not pay federal taxes you have to be outside the country for more than 330 days per year.

People keep repeating this falsehood both on ships and in this forum. People are hearing what they want to hear. I can find authoritative examples where the above is not the case - not exactly. What the IRS says on its website is:

“You meet the physical presence test if you are physically present in a [foreign country or countries] 330 full days during a period of 12 consecutive months.” https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test

It’s important to note that what the IRS says (must be present in another country) and what mariners commonly say (must be outside the United States) are not the same thing.

The IRS even gives an example:

”You leave Norway by ship at 10:00 p.m. on July 6 and arrive in Portugal at 6:00 a.m. on July 8. Since your travel is not within a foreign country or countries and the trip takes more than 24 hours, you lose as full days July 6, 7, and 8. If you remain in Portugal, your next full day in a foreign country is July 9.”

Unless a mariner is in a port for 330 uninterrupted twenty-four hour days in a year he would fail the Physical Presence Test and would likely owe federal tax. Can anyone show an example in law, a government website or some other non-profit where it says simply being out of the country is sufficient? I don’t think it exists.


#29

I think people are trying to use the resident alien Substantial Presence Test to get around the tax laws, but regardless it says pretty clearly in the tax code that “An individual who satisfies either one or both of these tests is treated as a resident for tax purposes.”

Here’s the IRS’s “am I exempt?” FAQ:

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-can-i-claim-the-exclusion-or-deduction


#30

When I worked in South Korea I filed for and received the foreign income tax exclusion. In filing my taxes I had to show I had paid taxes to South Korea for that covered time.


#31

Unless I’m mistaken, the Substantial Presence Test is for non-resident aliens to determine their tax status. It is not for citizens or resident aliens.


#32

That’s correct. Doesn’t stop dumbasses from trying to use it though.


#33

So, can anyone point to a US law, government website or non-profit which, under the following conditions, relieves someone of US federal tax liabilities? Again, I don’t think it exists as many people like to say it does.

  1. being out of the United States for 330 days or more,

  2. not being in a foreign country for 330 days or more,

  3. being a United States citizen or resident alien,

  4. having not paid income tax to a secondary country.


#34

US Seafarers are eligible for the Foreign Earned Income Exclusion (FEIE) which is a tax exemption for US citizens or resident aliens who live and work overseas. The FEIE provides the opportunity to claim 100% tax relief on the first $104,100 earned in 2018. According to IRS, to claim the foreign earned income exclusion you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:
•A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
•A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
•A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

So it does exist. But rather than being out of the US for 330 days or more, you must be physically present in a foreign country at least 330 days during any period of 12 months. This doesn’t help if you sail in international waters. Then you do not qualify. But it is helpful for mariners like yachties that live aboard a foreign yacht inside foreign territorial waters.

If you have a foreign tax home (basically live abroad w/ no plans to return to US) and you sail in international waters, you can still exempt the FEIE for the portion of time that you are in foreign territorial waters. However to do this, you need to keep an accurate log.


#35

Mariners on US Flag vessels must pay US tax, unless the vessel is working exclusively in a foreign country, or on its continental shelf. But read the fine print.

It is possible, and some foreign employers require it, to set up a foreign LLC, that the foreign employer pays for your services. Your foreign llc pays local taxes, if any. It also pays you a salary of not more than $104,000 per year. You owe US tax on that salary unless you stay out of the US 330 days per year. Properly set up, you and your foreign LLC may not owe any US tax. Your LLC can also provide you perks like the ability to open a foreign bank account, have a foreign credit card, sponsor yourself for foreign residences, pay for a company car, housing, insurance, retirement, expense account for business travel and meals, etc. You do not owe any social security or medicate tax on that foreign income either.

Some people say they legally pay no US tax.

You can do pretty much the same thing by moving to Puerto Rico. It’s the biggest legal tax dodge for Americans.


#36

It blows my mind that maritime academies still seem not to have a financial seminar to educate cadets on how to manage the relative boat loads of money they might make up on graduation, and how it will be taxed, including relavent sections of the Jones Act and tax code.

It’s a disservice not to. OP shouldn’t have to come here to ask this question.


#37

It blows my mind that with all the talk about needing to build up the Merchant Marine (and with the utter failure of Jones Act to maintain a healthy industry), Congress can’t step in and change the tax laws so all seafarers’ income earned outside US waters is tax free. It seems like a no-brainer.


#38

The Jones Act is a success at maintain a healthy domestic coastal trade. It’s just that under current USCG regulations, Jones Act tugs and barges, especially ATBs have a big competitive advantage over Jones Act ships. Due to absurdly high Longshoremen costs and delays, trucks on publicly subsidized roads have an advantage too. Without the Jones Act, there wouldn’t be many shipyards or many jobs for US mariners.

There is a huge emotional obstacle to giving highly paid mariners a big tax break, regardless of the economic merits.


#39

Yikes, sounds like it was a messy process for you. I will definitely try to avoid that. Thank you.


#40

One of the problems with US Flagged ships is that the manning cost is significantly more than foreign crewed ships. My assumption was that if the tax code became more favorable to mariners, then pay scale could be lowered to reflect that. The overall compensation for the mariner would remain about the same, but deep water companies could save 30% on the cost of an American crew.


#41

I’ve often thought the same thing. Also if deep-sea mariners were exempt from state income taxes they would not have an incentive to leave high-tax states. The states might benefit from increased economic activity.

I don’t see it happening however.