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Congress has provided substantial tax benefits for foreign workers, including missionaries.  This affects what a missionary might owe in Federal Income Taxes.  It does not change Social Security tax obligations of employees working outside the US.  In 20162017, an eligible foreign worker can exclude up to $101$102,300 100 of income from income tax.

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If indeed you need to file the return before completing your period of physical presence, you will need to file first without claiming Foreign Earned Income Exclusion.  Later, you may submit an ammended  tax 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.

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• • Some foreign countries may tax your income.
  • If foreign earned income exceeds $100,800, the published limit for that year, you may benefit from the foreign tax credit, foreign housing allowance, other deductions, and tax treaties. Discuss this with your tax advisor.
  • Investment or other income earned in the U.S. while working in a foreign assignment will still be subject to the normal tax rules.
  • 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.

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For the foreign housing calculation, the base household expense amount is 16% of the foreign earned income exclusion ($100$102,800 100 x 16%=$16,128336, in 20152017), so housing costs of less than $16,128 336 are not excludible. The maximum amount of the foreign housing exclusion is limited to 30% of the foreign earned income amount ($100$102,8100 100 x 30%= $30,240630).

• • For 20152017, housing costs in excess of $16,128 336 but less than $30,240 630 can be excluded in addition to the foreign earned income exclusion.
  • A missionary whose taxable compensation is less than $100$102,800 100 already has all of his or her income excluded by the foreign earned income exclusion.
  • A missionary who has taxable compensation of more than $100$102,800 100 but housing costs of less than $16,128 336 does not have sufficient housing costs to claim an additional exclusion for housing cost.
  • A missionary whose housing is excluded by the minister’s housing allowance already excludes housing costs from income. (There is no minimum threshold.)
  • A missionary who is required to reside on the mission’s business premises in order to perform their job (house parent at a mission school, for instance) already has the value of their housing excluded from income.
  • A missionary whose taxable compensation is more than $100$102,800100, who does not qualify for minister’s housing allowance, and whose housing costs exceed $16,128336, may claim an additional exclusion for housing , but only $14,112 in excess of the base housing costs(please consult your tax advisor for specifics).

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

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