Discussion:Is income on board ship taxable

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Discussion Forum Index --> Tax Questions --> Is income on board ship taxable

Taxing lady (talk|edits) said:

13 February 2006
I have a client who worked several mos. in '05 on a cruise ship with taxable wages in box 1 of w-2 and appropriate w/h in box 2. He was told by employer that days at sea are not taxable income and was given a log of # of days at sea and in port, as well as a merchant marine id that is supposed to make the income non-taxable. However, client says the income in box 1 is the entire amount he earned. I cannot find anything in my tax info searches that upholds the employers' claim. The time in international waters would not fulfill the foreign residency requirements for foreign income exemption. Also, the cruise line's home port is Hawaii, and the W-2 reports income for Hawaii, but no w/h. One cpa's opinion is that since no income was actually earned in Hawaii, there is no state tax liability. The taxpayer's home residence is Texas. It looks to me like the amount in box 1 is taxable, but probably not the state tax. Hope someone can help on this one.

Riley2 (talk|edits) said:

14 February 2006
Under 46 USC § 11108, an employer may not withhold state income taxes from a seaman’s wages if that seaman is serving on board a ship involved in interstate or international trade. In addition, no state may tax such wages (other than the seaman’s state of residence).

I see no break for the Federal taxes at all.

Taxing lady (talk|edits) said:

14 February 2006
Thanks for the input, this is the same conclustion I had reached.

Derrygrant (talk|edits) said:

14 February 2006
While a vessel may have port priveleges in Hawaii, the flag of registry is the country that is entitled to do the taxing of both crew and the vessel's income. The tax sovereignty of a country is recognized in varous treaties with the U.S.. Even if wages are earned in port you must look to the tax treaties to see if any arrangements are honored for income taxes and withholding taxes.

There are countries that will report such income to the U.S. and in return we do the same. However, some countries do not report such income. Essentially you are in a foreign country while aboard vessels under foreign registry. Look a little further before you throw in the towel on this one.

Riley2 (talk|edits) said:

15 February 2006
However, if the client is a U.S. citizen or resident, no exclusion is available on his Federal return. Even Sec. 911(a) will not apply.

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