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I am trying to do my daughter's taxes. She earned income on a cruise ship in international waters. Her W2 shows her income and federal tax withheld, but no social security or medicare withheld. I called the American company that employed her to ask why and was told to consult a tax attorney. Supposedly, because the income was earned in international waters, she does not owe any federal or state taxes, social security or medicare on this income. No state tax was reported or withheld. I asked why they withheld any federal tax and was told that they were required to withhold those taxes.
I called the IRS and was told that she owed federal taxes, and her portion of social security and medicare. Because she was given a W2 instead of a 1098, she was not considered self-employed (which she was not).
Does anyone know any regulations that would support her not paying federal taxes, social security and medicare? She is an American citizen and the employment lasted 6 months.
Thanks for any help you can give me.
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