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A missionary must file the right form to claim the foreign earned income exclusion. Form 2555 (or Form 2555-EZ) is filed with the tax return for the year in which the missionary had the qualifying income. The information required for the form will demonstrate how the missionary met one of the above requirements, and the amount of income that was not taxed because of the foreign earned income exclusion.

Common Questions

If I qualify for the foreign earned income exclusion, why do I still have to pay Social Security taxes such as FICA/Medicare or SECA if I’m a minister?
The foreign earned income exclusion does not exempt income from Social Security taxes. 

If I will qualify for the foreign earned income exclusion, how do I avoid having so much withheld from my check?
Form 673 may be used to allow a mission to stop withholding income tax.

If I have to file my tax return before completing my period of physical presence or tax year of residency, what do I do?
If you are working outside the U.S., your return is not due until June 15. You may get additional extensions — in some cases as late as October 15 — by applying for them before the prior extension expires. If you still do not qualify, you must file the return and pay tax without claiming the foreign earned income exclusion. When you do qualify, you can file an amended return and get a refund of the extra tax.

What if I must return to the United States before qualifying?

The minimum time requirements for bona fide residence and physical presence can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. If you leave for personal reasons before meeting the requirements, you will not be able to use the foreign earned income exclusion.

What other tax issues might apply?
Several other tax-related items beyond the scope of this article may affect some missionaries:

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• Some foreign countries may tax your income.

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• If foreign earned income exceeds $100,800, you may benefit from the foreign tax credit, foreign housing allowance, other deductions, and tax treaties. Discuss this with your tax advisor.

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• Investment or other income earned in the U.S. while working in a foreign assignment will still be subject to the normal tax rules.

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• Most states base taxation on residency in the state, and generally exempt income if it would qualify for the federal foreign earned income exclusion. You should consult the tax laws in your home state.

Additional Resources

The following resources are available from the IRS website at www.irs.gov:•

• IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad

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• Forms 2555 and 2555 EZ, Foreign Earned Income and their instructions

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• Form 673, Statement For Claiming Benefits Provided by Section 911 of the Internal Revenue Code

http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion

Please do not hesitate to contact the CPA firm of Capin Crouse, if you have any personal questions about foreign earned income exclusion:
www.capincrouse.com      info@capincrouse.com

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