American Pilots flying international routes are faced with detailed, and often times confusing, reporting requirements on their US income tax returns – more so than the average American expat.
US Expats across the globe have their fair share of frustrations dealing with increased FATCA measures and stricter foreign bank account reporting requirements. As confusing and stressful as American tax filing and asset reporting obligations as a US Expat can be, they pale in comparison to the meticulous tracking required for American Pilots who fly internationally.
International pilots are required to keep track of all of their time, both during flights and in their personal time when they are in foreign countries.
Pilots with international routes are required to record all of their time, down to the minute. They must not only report the locations in which they fly, they are also required to keep track of the time they spend off the clock in foreign countries. This is because the IRS will ask for this information if a pilot’s US income tax return gets audited.
Income earned flying in American territory counts as domestic income, and income earned while overseas counts as foreign earned income. Frequent questions arise as to what income counts as which – especially when flying over international waters.
Differentiating between US-sourced income and foreign earned income can also be tricky for American Pilots flying international routes. This is because there seems to be conflicting information abounding. Simply put, a pilot must report income earned while flying over American land and water as US-sourced income; so this income will not be excludable under the Foreign Earned Income Exclusion (FEIE).
Income earned while flying, landing, and taking off in foreign countries counts as foreign income, so a pilot may exclude up to $97,600 ($99,200 for 2014) from his US expat tax return by claiming the FEIE. The confusion arises where international waters are concerned. Some reports claim ‘international territory’ begins three miles off the coast of the foreign country, while others state that ‘international territory’ begins 200 miles off the coast. As a matter of fact, international waters start 200 nautical miles (230 miles) from the U.S. coastal line. See http://www.nauticalcharts.noaa.gov/csdl/mbound.htm and the Maritime Limits White Paper.
Use technology to keep track of your time abroad
We recommend using your smartphone to keep track of time spent in the US and abroad - specifically the app Evernote (there is no affiliation between us - we are simply happy customers who are happy to recommend it). It lets you take notes when your phone is offline and then automatically syncs with the cloud when you are back online (say in the hotel). The notes can be viewed and edited online or in the computer application (PC and Mac supported).
At the end of the day how you keep track is up to you - but we’d recommend a tool that lets you take notes on your phone and stores them in the cloud (so that if the phone is lost, your notes are safe).