Working at Sea: The Tax Home Rule for Vessel Crew in International Waters

Work a fishing boat, a research vessel, or a charter crew that spends most of its time in international waters, and that job alone does not give you a tax home outside Puerto Rico. 26 CFR 1.937-1(d) carries a specific carve out for exactly this situation. It is narrow. It does not settle everything a vessel crew member needs to track, so it is worth reading precisely rather than assuming it closes the whole residency question.

Does Employment on a Vessel Break Your Puerto Rico Tax Home?

Not on its own. 26 CFR 1.937-1(d) states that an individual is not considered to have a tax home outside the relevant possession solely by reason of employment on a ship or other seafaring vessel that is predominantly used in local and international waters. If your vessel meets that test, the job itself does not create a tax home problem.

The regulation includes its own worked example. A U.S. citizen fishery employee works 250 days at sea in a single year, and the vessel spends 225 of those days in international and local waters. That comparison favors international and local waters, so the regulation confirms the employee does not have a tax home outside the possession solely because of the vessel job. Publication 570 carries the same rule for residents. Publication 570 describes your tax home as your regular or main place of business, employment, or post of duty, then layers the same seafarer exception on top of that general definition.

What Does "Predominantly Used in Local and International Waters" Mean?

This part of the test is about the vessel's year, not your personal schedule. Add up, for the vessel, the days it spends in international waters plus the days it spends within three miles of Puerto Rico during the tax year. Compare that total against the days the same vessel spends in United States territorial waters, another possession's waters, or a foreign country's waters. If the international and local total is larger, the vessel meets the test.

The comparison runs once per vessel, per tax year. It doesn't ask how many of those days you personally were on board, only whether the vessel as a whole operated predominantly in international and local waters that year. Join partway through the season, and you still benefit from the rule if the vessel's full year clears the test.

Does the Vessel Rule Also Satisfy the Presence Test and the Closer Connection Test?

No. Bona fide residency requires passing three separate tests every year, and the vessel rule only touches one of them. Publication 570 lays out all three: the presence test, the tax home test, and the closer connection test. The vessel rule in 1.937-1(d) neutralizes the tax home test for qualifying vessel employment. It says nothing about how many days you spent in Puerto Rico, and nothing about which country or possession you have a closer connection to. You still work through the presence test, tax home test and closer connection test on their own terms.

For crew whose schedule makes a clean 183 day year difficult, a heavy travel season is exactly the case the rolling three year option exists for. Publication 570 allows presence to be established across a rolling window instead of a single calendar year, with a 60 day annual floor. If a single vessel season is likely to pull your count below 183 days on its own, read the 549 day alternative over three years.

Where Is Your Pay Taxed When You Are in International Waters?

Separate from the tax home question, there's a sourcing question: where does your pay count as earned? 26 CFR 1.937-2 answers it for a bona fide resident. Its own example involves a fishing boat crew member who is a bona fide resident of the Northern Mariana Islands. The regulation treats the compensation that crew member earns for services performed in international waters as income from sources within the possession, not as foreign source income and not as U.S. source income by default.

That result follows from applying the possession source rules to a bona fide resident. Once you are a bona fide resident of Puerto Rico, your international waters pay is generally sourced to Puerto Rico under this rule. It's a distinct question from whether the vessel job threatens your tax home, and the two should not be confused when you document your year.

Does This Rule Cover a Cruise or a Ferry Trip?

No. The vessel tax home rule is about being employed on a vessel that itself works international and local waters. It has nothing to do with taking a cruise, a ferry, or a day trip by boat as a passenger. Asking about time spent at sea as a traveler rather than a crew member is a day counting question under the presence test, covered in ferries, cruises and day trips, not a tax home question at all.

Keeping a day ledger by hand across a vessel schedule, with irregular port calls and shifting time zones, is exactly the kind of recordkeeping people fall behind on. One83 builds that ledger from your calendar so the record exists before an examiner ever asks for it.

Frequently Asked Questions

Does working on a ship automatically break my Puerto Rico tax home?

No. Under 26 CFR 1.937-1(d), employment on a ship or other seafaring vessel that is predominantly used in local and international waters does not, by itself, give you a tax home outside Puerto Rico. The rule only addresses the tax home test. You still have to separately meet the presence test and the closer connection test to be a bona fide resident for the year.

What does "predominantly used in local and international waters" mean?

It is a time comparison for the vessel, not for you personally. Add up the days during the tax year the vessel spends in international waters plus waters within three miles of Puerto Rico. If that total exceeds the days the vessel spends in U.S. territorial waters, another possession's waters, or a foreign country's waters, the vessel meets the test.

Do days at sea on a qualifying vessel count toward my presence test?

The vessel rule and the presence test are evaluated separately. Days spent on a qualifying vessel do not automatically fail the presence test, but you still need to track where you physically were each day and apply one of the presence test's methods, such as the 183 day count or the 549 day three year alternative, to those days.

Where is my pay taxed if I earn it while the vessel is in international waters?

Under 26 CFR 1.937-2, compensation a bona fide resident of Puerto Rico earns for services performed in international waters is treated as income from sources within Puerto Rico. This is a separate question from the tax home rule: it is about where the income is sourced, not about whether the vessel work threatens your residency.

Is a cruise or ferry trip covered by this rule?

No. The vessel tax home rule in 26 CFR 1.937-1(d) is about being employed on a vessel that works international and local waters, not about taking a cruise or ferry as a passenger. Leisure travel by sea is a presence test day counting question, covered separately.

One83 is a tracking tool, not tax advice. Consult a licensed tax professional about your situation.