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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 2022, an eligible foreign worker can exclude up to $112,000 of income from income tax.
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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.
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Bona fide residence requires intent to stay in the foreign country for an extended or indefinite stay, and that residence covers an entire tax year. It does not require a plan to live there for the rest of the missionary’s worker’s life, but the intended residence is on-going and indefinite. Once a missionary an international worker establishes their tax home in a location during the first year of residency, that person is considered a Bona Fide Resident for subsequent tax years. If a missionary worker wishes to use the Bona Fide Resident test to establish residency in their first year of residence, they may wish to consult a tax adviser. The intent may be demonstrated by factors that show the missionary worker has made a longer-term or indefinite commitment, though there are no specific factors which are required in every case; interpretation is needed. Example: A missionary staff member without a husband or dependents arrives in France on November 1, 2020, planning to stay for four years. She rents an apartment with a one-year renewable lease, obtains a French driver’s license, and files taxes in France as a resident. She takes a two-week vacation annually back to the U.S., but otherwise lives in France until May 30, 2022, when for personal reasons she returns to the U.S. to live. She was a resident of France for all of 2021, and her compensation from November 1, 2020 until May 30, 2022 will qualify for the foreign earned income exclusion. |
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.
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Furlough is a temporary work assignment in the U.S. It does not constitute a change in residence in most circumstances. Therefore, it does not interrupt "Bona Fide Residence" of someone utilizing the Foreign Earned Income Exclusion. IRS form 2555 will ask how many days you worked in the U.S., and you will need to report that. Technically, earnings for work in the U.S. are taxable ; however, due to the standard deduction level, a Reliant missionary worker rarely owes more tax during a furlough. |
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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.
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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.
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- For 2022, housing costs in excess of $17,920 but less than $33,600 can be excluded in addition to the foreign earned income exclusion.
- A missionary worker whose taxable compensation is less than $112,000 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 $112,000 but housing costs of less than $17,920 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 $112,000, who does not qualify for minister’s housing allowance, and whose housing costs exceed $17,920, 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:
Name | Title/Specialty | Contact Info | Notes |
|---|---|---|---|
| Rick Wacek | Wacek and Associates Specializing in Expat Tax Preparation | email: rick@wacekcpa.com website: https://wacekcpa.com/ | Wacek and Associates offers one free introductory consultation to any international worker who is getting ready to launch overseas. |
| Krystal Rose | Village |
Tax Services |
Sanford, FL 32771
Clergy & Overseas Tax Specialist | phone: 407-385-0267 email: info@missionarytax.com website: www.missionarytax.com | Village Tax Service offers a free 30min introductory consultation for all international workers before they launch overseas. Reliant will cover any additional cost up to 1 hour. |
