Cruise ship employee

[SaraEA]

In keeping with the "emolument" theme, just had a client show up who hasn't filed in four years.  He works on a cruise ship.  The company is registered in a foreign port (they all are), but the client reports for work at several US ports then launches into (I presume) international waters.  The W-2s only have box 1 populated--no withholding or FICA.  I can see that the foreign owners have no interest in collecting and turning over SS or Medicare taxes to the US gov't.  Usually when I see foreign income though, one country collects the retirement funds, so if say Germany collected them, they wouldn't be subject to FICA here.  Is it possible that no country collects them?  If this client's wages are subject to FICA, how the heck do I report it on the return (uncollected tips?)

[MsTabbyKats]

Is the client American?

if he's not (most cruise ship employees aren't)......his income isn't subject to FICA....and you'd file 1040-NR.

[SaraEA]

Client lives in the US and is a US citizen.

[MsTabbyKats]

I'd do the uncollected tips........

Other idea.....wages on Line 7 and the income backed out on Line 21...with "see Schedule C..   Then on Schedule C ..... an explanation at the end (under "other expenses").

[kcjenkins]

Simpler, put in the W-2 as received, then add Form SE, on the first blue line put "W-2 from foreign employer" and the amount from box 1.  You're done.  

[MsTabbyKats]

What or where is the blue line?

AFAIK....you can only use Form SE with a C or F.  (Which is why I suggested the C)

Well...TaxAct couldn't do this....maybe ATX can.

[SaraEA]

Did some research at the office today and found Rev. Rul 92-106.  It states that if the employer is foreign and the employee a US person, income taxes must be withheld if the ship touches port in the US.  The income is not subject to FICA or FUTA because no services were performed in the US.  Sounds like a godsend to the employee, until it's time to collect SS or apply for Medicare that is.  Thanks for all your ideas.  I was thinking along the exact same lines until I found the ruling.

This international stuff is so tricky that it reinforces my belief that in the future tax professionals will have to have specialties just like physicians....international, small business, big business, partnerships, estates and trusts, multiple states, investments, etc.  Already many of us gravitate toward areas we like and eventually learn a lot about, which brings referrals, which helps us develop more knowledge in that area, which brings more referrals.  No one could possible know all the tiny details about every area of taxable income, so at some point we'll be saying heck with it and become specialists instead of generalists.

I did a return with foreign earned income exclusion a couple of years ago, and the next thing I knew the guy's banker was calling about a client who wants to set up some foreign trusts!!  That was so beyond my limits I told him to find an attorney who specializes in foreign trusts.  Sometimes you just have to pass this stuff on.

If I were to choose a specialty, it would be estates and trusts.  What would others pick?

[MsTabbyKats]

Interesting....

May I ask what cruiseline?

Some of them do have ports in the US...(not embarking...but just visiting for the day)....Port Canaveral, Boston, Bar Harbor, Hawaii...

They just stopped "cruises to nowhere" because the foreign employees need to work on a cruise that stops in a foreign port...not just leave NY and return to NY in 2 days.

[SaraEA]

Carnival.  They do port in the US and therefore have to withhold income taxes and issue W2s to US employees.  Wages are not subject to  FICA or FUTA though.  Who would have guessed.

[MsTabbyKats]

Carnival.  They do port in the US and therefore have to withhold income taxes and issue W2s to US employees.  Wages are not subject to  FICA or FUTA though.  Who would have guessed.

interesting.....because I'm going on a cruise with them next month that stops in Boston and Portland, Maine.  I guess the American workers are technically off duty when in American ports.  May I ask what the occupation is?  I'm going to guess "entertainer" .......definitely not anything to do with food work or housekeeping, correct?

 

[SaraEA]

He said Skipper, but looking at the wages I highly doubt it.  The more I learn the more I realize that this is hardly anyone's dream job.  They work really long hours and can be called to duty from a sound sleep.  Wages are low.  Do remember to tip everyone.  The crew sure depends on it.

I've never been on a cruise and have no desire to go.  I don't want to spend two weeks eating, and the tourist traps in every port would bore me (I'm not much of a shopper).  When I go somewhere I want to see the historic sites and especially what grows there that I haven't seen growing before (e.g., rice, cacti, pineapples, coffee).  The ocean is beautiful and powerful, but it's the same old same old. The only cruise I'd consider would be Alaska, because it would be kind of hard to get around without the guides and transportation.  Anyone been?

[MsTabbyKats]

Cruise ships charge you a daily service fee to cover the tips.  You can "take it off" your invoice but very few do that.  In addition...we generally tip more.

Heave to me....eating, casino, eating, casino....shopping for jewelry (and then coming home and having the same thing custom made at a fraction of the cost).

Truth be told....I live almost walking distance from the port...and the cruises are so inexpensive...it's easier and less work to spend a week on a ship than at home.

However...you're right.  It's NOT the way to see the world.

But...getting back to tax ....there were "cruises to nowhere"...which meant the ship left the port in the US....stayed in the ocean for a day....returned to the same port.  They just discontinued these because the foreign workers (which most are) had to work "outside the US"....and since these cruises didn't visit foreign ports....it violated the terms of their visas ( &tax issues).