Even if you live out of the country seeking converts, as long as you remain a citizen of the United States you must file your taxes. Missionaries typically file their taxes as self-employed individuals, reporting any stipends and honorariums on a Schedule C. The tax code includes a number of provisions available to missionaries as members of the clergy or religious workers. Understanding how to file your taxes ensures that you take advantage of the tax rules that govern your mission.
Self-employed taxpayers have to pay the same payroll taxes as wage earning employees, as well as the employer’s portion of the taxes. Payroll taxes contribute to Social Security and Medicare, social insurance programs from which ministerial employees may be exempted. To apply for an exemption, you must file either Form 4361 to elect personal exemption or Form 4029 if your sect or division is already recognized as exempt from social insurance. Even if you receive wages from a sponsoring church and are considered an employee for other purposes, your wages are subject to self-employment tax unless you elect for an exemption.
Earning income in a foreign country adds an additional layer of rules to a missionary’s taxes. Fortunately, the tax code provides a credit to offset foreign earned income to help alleviate potential double-taxation that occurs when your income is subject to tax in the country of residence as well. Additionally, some countries have entered into tax treaties that may allow U.S. citizens an exemption from local taxation.
Rules for whether missionaries must file state income taxes vary from state to state. Typically the obligation to pay state taxes depends on residency. If you relocate permanently to your mission country, you are unlikely to meet residence thresholds for state tax filing purposes. Residency for state income taxes requires examining the facts and circumstances of your missionary trip and the state laws.
Missionaries often receive donations from congregation members to help them go abroad and spread the faith. Depending on the purpose of the donations, missionaries might have to include them in taxable income. Generally, if the donation is restricted to a specific purpose, such as buying religious texts to distribute, then the donation is a gift. When the missionary has sole discretion over the use of the funds, however, it counts as income.
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