We at TFX support global missionaries and other non-profits. We believe that whether you’re on a religious mission or in pursuit of other non-commercial ventures, U.S tax problems should be the least of your worries. We have worked with hundreds of ministers around the world and explain some of the U.S tax issues below.
A Minister has a “dual tax status” as an:
Importantly - Minister employee wages are not FICA wages – therefore no Social Security or Medicare taxes are withheld from a minister’s pay, nor paid by the church. Minister employee wages are subject to SECA (Self‐Employment Contributions Act).
This means that ministers need to pay Self-Employment tax equal to 15.3% of their minister employee wages.
If you have an employer, whether in the US or abroad, you are not required to pay self-employment taxes (Social security and Medicare); it is the responsibility of your employer to pay this for you. As discussed above, missionaries are considered self-employed for payroll tax purposes and liable for SECA (Self-Employed Contributions Act) tax. Thus - your tax result may differ depending on where you do your mission.
Some countries have signed a ‘Totalization Agreement’. If you reside in a country that has signed this agreement, and you pay to the resident country Social Security system you are exempt from SECA tax.
|Belgium||Italy (only Italian citizens)||Sweden|
Same income and payroll tax treatment by the church as other U.S.‐based employees.
Since Missionary is eligible to exclude all or a portion of his/her wages under the foreign earned income or foreign housing exclusions, the missionary may request exemption from tax withholding indicating that they qualify for these exclusions.
U.S. citizens can use form 673. Green card holders should submit a letter to the employer explaining their right for the exclusion and requesting exemption from federal tax withholding.
This is an often misunderstood aspect of missionary tax. Following through the process below to request an exemption from Self-employment tax will also mean that you voluntarily waive benefits from the social security system.
I waive all rights to any social security payment or benefit under Titles II and XVIII of the Social Security Act. I understand and agree that no benefits or other payments of any kind under Titles II and XVIII of the Social Security Act will be paid based on my wages and self-employment income to any other person. I certify that I have never received benefits or payments under the above titles, nor has anyone else received these benefits based on my earnings.
You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect.
Who can't be exempt. You can't be exempt from SE tax if you made one of the following elections to be covered under social security. These elections are irrevocable.
To request an exception, you must file form 4361 and meet all of the following conditions:
|Members of the Clergy||Members of Recognized Religious Sects|
|How||File Form 4361||File Form 4029|
|When||File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment, any of which came from ministerial services||File anytime|
|Approval||If approved, you will receive an approved copy of Form 4361||If approved, you will receive an approved copy of Form 4029|
|Effective Date||For all tax years after 1967 in which you have at least $400 of net earnings from self-employment, any of which came from ministerial services.||For all tax years beginning with the first year you meet the eligibility requirementsdiscussed later.|
The missionary may be eligible to exclude all or a portion of his/her wages under the foreign earned income or foreign housing exclusions. The missionary may also be subject to foreign jurisdiction taxes which may need to be withheld by the church.
Missionary may be subject to state income tax withholding - may need to be withheld by the church.
If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement.
If housing allowance is provided as compensation for ministerial services performed as an employee, or a home is furnished for a licensed, commissioned, or ordained minister - the recipient may be able to exclude from income the FMV(fair rental value) of a home (a parsonage) or a housing allowance. A minister who is furnished a parsonage may exclude from income the fair rental value of the parsonage, including utilities. However, the amount excluded can't be more than reasonable compensation for the minister's services.
If housing allowance was excluded from gross income it cannot be excluded again under the foreign housing exclusion rules.
The fair rental value of a parsonage or the housing allowance is excludable only for income tax purposes. The minister must include the amount for self-employment tax purposes.