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Congress has provided substantial tax benefits for foreign workers, including missionariesU.S. citizens working in another country. This affects what a missionary Reliant International worker might owe in federal income taxes. It does not change Social Security tax obligations of employees working outside the U.S. In 20212022, an eligible foreign worker can exclude up to $108to $112,700 000 of income from income tax.

This summary provides the basic requirements for claiming the foreign earned income exclusion, plus some additional information. We cover:

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What income can be excluded?

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• Physical Presence: The worker was present in the foreign country for 330 full days during a continuous 12-month period.
• Bona Fide Residence: The worker established residence in a foreign country for a period that includes an entire tax year. After establishing residency with the physical presence test, that worker then is a "Bona Fide Resident" in future yearyears. 

In most cases, a foreign worker will first establish physical presence during the first year of eligibility of Foreign Earned Income. After having established physical presence, foreign workers are then considered "Bona Fide Residents."  For years following, if that worker continues to live and work in a foreign location, the Bona Fide Resident definition applies in most cases. There are other qualifications for Bona Fide Residence, and a missionary worker should consult a tax consultant if they will not meet the physical presence test in the first year. 

Once Bona Fide Residence has been established using the physical presence test, a foreign worker continues to use that exclusion while working in their place of residence. That worker does not need to continue to meet the physical presence test in subsequent years.

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Claiming the Exclusion

A missionary worker must file the right form to claim the foreign earned income exclusion. Form 2555 (or Form 2555-EZ) is filed with the tax return each year in which the missionary worker has qualifying foreign income. The information required for the form will demonstrate how the missionary worker met one of the above requirements and the amount of income that was not taxed because of the foreign earned income exclusion. That means that the missionary worker will report the dates that they worked outside the U.S. and the dates they worked inside the U.S. each year. The Physical Presence requirement only needs to be satisfied the first year of qualifying for foreign earned income. 

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?

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If I will qualify for the foreign earned income exclusion. How do I avoid having so much withheld from my check?

An international missionary may ask the finance team to change the amount paid each month toward Federal Income Tax. This request can be included on the W4 form, or by written instruction.

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Other Tax Considerations

Several other tax-related items beyond the scope of this article may affect some missionariesinternational workers:

• • Some foreign countries may tax your income.
  • If foreign earned income exceeds 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.

Additional Exclusion: Foreign Housing

The foreign housing exclusion essentially allows the exclusion of some overseas housing expenses that exceed a calculated threshold from income. The foreign housing exclusion is in addition to the foreign earned income exclusion. Most Reliant missionaries workers will not use this exclusion simply due to the fact that the base Foreign Earned Income Exclusion is greater already than most missionary international salaries. When the Foreign Earned income exclusion matches or exceeds your salary, you do not need to itemize housing separately. 

For the foreign housing calculation, the base household expense amount is 16% of the foreign earned income exclusion ($108$112,700 000 x 16%=$17,392 920 in 20212022), so housing costs of less than $17,392 920 are not excludible. The maximum amount of the foreign housing exclusion is limited to 30% of the foreign earned income amount ($108$112,700 000 x 30%= $32$33,610600).

• • For 20212022, housing costs in excess of $17,392 920 but less than $32$33,610 600 can be excluded in addition to the foreign earned income exclusion.
  • A missionary worker whose taxable compensation is less than $108than $112,700 000 already has all of his or her income excluded by the foreign earned income exclusion.
  • A missionary worker who has taxable compensation of more than $108than $112,700 000 but housing costs of less than $17than $17,392 920 does not have sufficient housing costs to claim an additional exclusion for housing cost.
  • A missionary worker whose housing is excluded by the minister’s housing allowance already excludes housing costs from income. (There is no minimum threshold.)
  • A missionary worker 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 worker whose taxable compensation is more than $108$112,700000, who does not qualify for minister’s housing allowance, and whose housing costs exceed $17,392920, may claim an additional exclusion for housing (please consult your tax advisor for specifics).

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Reliant can not make recommendations about tax decisions, so it is the missionaryempmloyee's responsibility to seek that input from a financial advisor or tax specialist.

Below is a tax specialist that the Reliant International Team has vetted for experience and accuracy with International Tax matters:

CPA firm of Capin Crouse provides guidance to Reliant.  You may contact them if you have any personal questions about foreign earned income exclusion:
www.capincrouse.com info@capincrouse.com

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