Mission Work Foreign Country

[Burke]

Have a client working in a foreign country doing missionary work. Donations are solicited under the name of the mission, although the missionaries were affiliated with an established independent church in the US. These donations are used to pay living expenses of the missionaries. Apparently each missionary keeps their funds segregated in a different account and controls their own monies. No one has applied for 501(c)(3) status for this organization, but do they have to? "There are numerous congregations associated with this non-denominational church movement,", according to its website in detailing the establishment of "church plants." "Each congregation is autonomous and strives to pattern their church life according to Biblical norms". Does either the mission organization and/or the missionaries have any tax reporting responsibilities in the US?

[MAMalody]

This is not unusual. Many times independent missionaries place themselves under the authority of a local church. It reduces their expenses for 510(c)(3) status and usually allows them to qualify as dual status pastors and therefore receive a houisng allowance. US citizens are subject to income tax on their world-wide income, so it would be a factor for them individually. The church will probably give them a 1099Misc. Whether they use that or a W-2, there appears to be a reporting requirement only. Use of Form 2555 may reduce or eliminate any federal tax.

[Burke]

No 1099Misc or W-2's have been issued. I thought of the 2555 Foreign Income Exclusion but that would only apply to federal income tax, correct? My client has not opted out of the Social Security system via 4361 so is he responsible for SS tax on these "living expenses?" And if he does not file 2555, would he be eligible for EIC? (Low income, children.) The mission organization applied for and was issued some kind of "tax-exempt" status with a tax ID number from another state, but not the IRS.

[Gretel]

The only part I know something about is, yes, you are right, 2555 is for income tax only. SE tax still applies.

[MAMalody]

No 1099Misc or W-2's have been issued. I thought of the 2555 Foreign Income Exclusion but that would only apply to federal income tax, correct? My client has not opted out of the Social Security system via 4361 so is he responsible for SS tax on these "living expenses?" And if he does not file 2555, would he be eligible for EIC? (Low income, children.) The mission organization applied for and was issued some kind of "tax-exempt" status with a tax ID number from another state, but not the IRS.

As far as I remember, there is no disqualification for being overseas and getting EIC, unless you are filing a Form 2555.

While the Form 2555 only applies for federal income tax, I have found that some states have similar provisions and if he is filing a state return, you may want to check out that state.

Since your client has not opted out of Social Security, he would be responsible for SE tax on his clergy income, including housing, minus any unreimbursed professional expenses (regardless of the IRC 265 exclusion) and tax prep fees.

[Burke]

Thanks for the information. I will advise him of his options and see what happens. He will not need to file a state return.