K1W1: What I am going to say first will support what you say in a way if you are in love with the guy and want to deal with operating around the rules... then there is the big but.... anyway. K1W1... I think you are thinking a Foreign Vessel not US registered--- Crew Members "Income from the performance of services by a nonresident alien in connection with the individual's temporary presence in the United States as a regular member of the crew of a foreign vessel engaged in transportation between the United States and a foreign country or a U.S. possession is not income from U.S. sources." But for some deviling extenuating circumstances... Key here one might be interested in Publication 515 "USA sourced income..." "Personal Serviced performed..." Now these guys are operating in the Caribbean and likely stopping at US Territory Ports or entering in port or waters controlled by US... and importantly they are US FLAGGED remember that last one. "Source of Income - Personal Service Income All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. The place where the personal services are performed determines the source of the personal service income, regardless of where the contract was made, the place of payment, or the residence of the payer." "Territorial Limits Wages received for services rendered inside the territorial limits of the United States, as well as wages of an alien seaman earned on a voyage along the coast of the United States, are regarded as from sources in the United States. Wages or salaries for personal services performed in a mine or on an oil or gas well located or being developed on the continental shelf of the United States are treated as from sources in the United States." Vessel or Aircraft Services "Income from the performance of services directly related to the use of a vessel or aircraft is treated as derived entirely from sources in the United States if the use begins and ends in the United States. This income is subject to nonresident alien withholding if it is not effectively connected with a U.S. trade or business. If the use of a vessel or aircraft either begins or ends in the United States, refer to Transportation Income in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities." This usually applies to foreign registered ships... and you see visiting the USA on a foreign yacht can be interesting tax wise. On that one can play games and say oh this guy came on in Bahama's and we cruised around and dropped him off in the Bahama's... but you might have stopped somewhere along the line or entered US waters along the way. Then you get into counting days in and out of the US territory. Now if you start operating your yacht and you own it you and are a US citizen the services are considered for your benefit and you is responsible. Even if you have a company running it. And, also you may not want to keep track of or limit your operational opportunites. You start getting into counting time in or out of territorial waters... and ports of call for tax purposes and then there is the big problem. In light of the above stated rules you might wonder why worry well if you are responsible you are also responsible for the tax withholding. Better just hire US crew if you are US Flagged... why is: BUT >>> The real problem is that a US Flagged ships/yachts etc. are controlled, regulated and subject to US Coast Guard Regs. As they are subject to the laws of the US it means they are considered territorial to the US... even outside of US waters. You know or remember that little thing about US Coast Guard can board any US vessel anywhere in the world... this is why. So US law is applicable and US tax law. Its those pesky flag of registry rules which are so complicated from place to place. So wherever you are on a US Flagged vessel you are under the laws of the United States... so the foreign crew member is subject too unless he is under a tax cooperation treaty exempting you might as well consider him operating in the US because he is on a US vessel in your employment. One might wonder why there are so many US Flagged commercial vessels in international trade... I do not see this to be the case. If I were an owner of a US Flagged boat I would not want take tax regulations lightly. In operations particularly ... or be sloppy in how this was handled. Just for some passing fancy. EVEN IF IT IS A PLEASURE YACHT. Also, there are a lot of tax guys telling you this or that because people will pay to hear what they want... and people like making money. Its like my long term business attorney said, you pay millions in attorneys fees for us to sort out it all and really protect you the assets... but these guys that think they can do it simple or cheap always find out that that is not the case. And, he is a friend... but many of may other friends don't much like him because of those monkey wrenches... and if left to my own devices I would be totally tangled up.