Missionaries are at risk for having their passports revoked for failing to file their taxes.
The IRS and the State Department are increasing their enforcement of the FAST Act which was signed into law back in 2015. The act included a provision for the IRS to share information with the State Department allowing the State Department to deny new passport applications or revoke existing passports when someone owes more than $50,000.
You may think that there is no way that would ever owe that much in taxes, but the number is not hard to hit even for low-income missionaries. As missionaries many of us sell our homes, travel around the USA raising funds and changing addresses. Then we move overseas and dive into ministry. Taxes are not on our minds and when the thought finally comes to mind, we talk to other missionaries who erroneously say that because we live overseas that we don't need to file. So a few years pass and it is finally time to go back to the USA to visit family and report back to our supporters and churches. Excitement is high and then suddenly everything changes when our passport is taken from us and we have no way to return to our ministry and a huge unexpected tax bill.
How could this happen? First by moving, and selling our homes, we do not update the IRS with a new address. Additionally, many times the address left with the HR department of your church or sending agency quickly becomes obsolete. When tax documents and notices are sent they are undeliverable. In the meantime the sending agency or church has been reporting the $50,000 a year pay on a 1099MISC to the IRS and because no return was filed and the notices the IRS has sent have been ignored, the IRS calculates what is owed using the highest possible calculations, then they add failure to file penalties, failure to withhold penalties, and then interest accruing every day. With all that, it doesn't take long for a missionary to have a $50,000 bill with the IRS and for a passport to be taken.
Don't let this happen to you. Make sure to file on time and not let the IRS calculate what you owe, rather use every legal tax break specific to your situation. Staying compliant with the IRS will ensure that you can continue serving overseas.
]]>The IRS and the State Department are increasing their enforcement of the FAST Act which was signed into law back in 2015. The act included a provision for the IRS to share information with the State Department allowing the State Department to deny new passport applications or revoke existing passports when someone owes more than $50,000.
You may think that there is no way that would ever owe that much in taxes, but the number is not hard to hit even for low-income missionaries. As missionaries many of us sell our homes, travel around the USA raising funds and changing addresses. Then we move overseas and dive into ministry. Taxes are not on our minds and when the thought finally comes to mind, we talk to other missionaries who erroneously say that because we live overseas that we don't need to file. So a few years pass and it is finally time to go back to the USA to visit family and report back to our supporters and churches. Excitement is high and then suddenly everything changes when our passport is taken from us and we have no way to return to our ministry and a huge unexpected tax bill.
How could this happen? First by moving, and selling our homes, we do not update the IRS with a new address. Additionally, many times the address left with the HR department of your church or sending agency quickly becomes obsolete. When tax documents and notices are sent they are undeliverable. In the meantime the sending agency or church has been reporting the $50,000 a year pay on a 1099MISC to the IRS and because no return was filed and the notices the IRS has sent have been ignored, the IRS calculates what is owed using the highest possible calculations, then they add failure to file penalties, failure to withhold penalties, and then interest accruing every day. With all that, it doesn't take long for a missionary to have a $50,000 bill with the IRS and for a passport to be taken.
Don't let this happen to you. Make sure to file on time and not let the IRS calculate what you owe, rather use every legal tax break specific to your situation. Staying compliant with the IRS will ensure that you can continue serving overseas.
QUICK SUMMARY
US tax law has been recently changed regarding Form 2555 (Exclusion of Foreign Earned Income) and the Additional Child Tax Credit. The Child Tax Credit (known as the “Additional Child Tax Credit”) will no longer be refundable for taxpayers electing to exclude foreign earned income from tax. You may need to immediately change your tax withholding and/or expect to pay significantly more taxes when you file your return.
FULL ARTICLE
Change in Tax Law Takes Away Refundable Child Tax Credit for Overseas Filers of Form 2555.
As part of the Trade Preferences Extension Act of 2015 passed by Congress and signed into law by the President on Jun 29, 2015, tax law has been changed regarding those who file Form 2555 (Exclusion of Foreign Earned Income) and who also received the refundable Additional Child Tax Credit. As noted below in the quotation from the law, the Child Tax Credit (also known as the “Additional Child Tax Credit”) will no longer be refundable for taxpayers electing to exclude foreign earned income from tax.
Briefly, this means that those who file Form 2555 and who relied upon this refundable credit to offset part or all of their Self-Employment tax will no longer be able to do this, which MAY result in the loss of thousands of dollars of this credit! You may need to change your tax withholding.
Text of Law
Section 807. Child tax credit not refundable for taxpayers electing to exclude foreign earned income from tax
(a) In general - Section 24(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
(5) Exception for taxpayers excluding foreign earned income
Paragraph (1) shall not apply to any taxpayer for any taxable year if such taxpayer elects to exclude any amount from gross income under section 911 for such taxable year.
(b) Effective date - The amendment made by this section shall apply to taxable years beginning after December 31, 2014
FEEL FREE TO CONTACT US AND SHARE!
If you think this tax law change might affect you please feel free to contact us so that we can help you prepare and plan for these changes.
Even if this does not affect you, chances are you know someone who it does affect and who this information will be important. Please feel free to share with them and forward this email to them.]]>
Ok with that out of the way let’s get to the question you are all asking, “If I reside outside the USA do I need to have USA approved health insurance?”
I know that many of you will just stop reading after the short answer, but I do encourage you to read through the information here to understand how this can and will affect you. I will also let you know of an exemption that will allow you to maintain the same coverage when you are abroad or living and working in the USA.
The short answer: NO
The long answer: US citizens that reside in other countries do not need to have US health insurance. On your 2014 taxes you will begin to pay a fee for not maintaining health insurance. This is the fee we were promised was not a tax but only was approved as constitutional by the Supreme Court because it is a tax. Confusing? I know. That’s government for you.
That would include those who are outside the US for 330 days of any 365 day period (Physical presence test of the form 2555) Paragraph 12 here confirms this. This is like an automatic exemption which does not require you to apply for an exemption and is taken care of at tax time. There are however other exemptions that are of interest to the missionary.
Follow this link to find out more about how to qualify for other exemptions.
There are a few exemptions that can be of interest to missionaries. Missionaries go back and forth between their home country and their resident country. So while we know that while you are living as an expat in another country you will not be subject to the ACA, what about when you come back to the USA for an extended period?
One exemption is that of having a lapse of coverage for three months or less. Because we know that residing abroad is considered to meet the requirements of having coverage, it would appear that coming to the USA for a period of three months or less you will not be subject to any penalty. This could be ideal for missionaries serving overseas at a school. Many of these teachers and other school staff members return to the USA during the summer break. In this case no other insurance would need to be purchased from the state exchanges.
While you might be complying with the law, we all need insurance that does cover us. Most insurance purchased in the USA, including any you will be able to get through the Health Insurance Marketplace, does not cover the insured outside of the USA. And many times insurance purchased to cover a missionary in a foreign country does not cover them when they are in their country of citizenship. (The fine print on those insurance forms must be read). So I this case a missionary who has coverage in a foreign country returns to the USA for less than 3 months complies with US law but ends up uninsured during those months. Not a very attractive position considering health issues can pop up at any time.
Is there an option that will satisfy the individual mandate when in the USA and still give coverage to a missionary living as an expat overseas?
Yes there is and it is a very good option for missionaries. Listed in the exemptions from individual shared responsibility payment there is one exemption for being “a member of a recognized health care sharing ministry.” Sharing ministries are usually Christian organizations where the members help each other share healthcare costs. These are generally significantly less expensive than traditional health insurance and have the added benefit of providing coverage anywhere in the world.
My personal experience has been with Samaritan Ministries. My family and I have been members for over 5 years now and have been very happy with them. There are of course other healthcare sharing ministries that qualify for the exemptions; I just don’t have personal experience with them.
So in summary residing in another country automatically exempts a person from the individual requirement to carry health insurance. While this is a relief for many, the reality of missionary life usually includes travel back and forth between the country of service and the home country. There will likely be times when the missionary does need to carry health insurance while in the USA. The exception of health sharing ministries can work for a missionary both while they are abroad and when in the USA.
]]>There are a few exemptions that can be of interest to missionaries. Missionaries go back and forth between their home country and their resident country. So while we know that while you are living as an expat in another country you will not be subject to the ACA, what about when you come back to the USA for an extended period?
One exemption is that of having a lapse of coverage for three months or less. Because we know that residing abroad is considered to meet the requirements of having coverage, it would appear that coming to the USA for a period of three months or less you will not be subject to any penalty. This could be ideal for missionaries serving overseas at a school. Many of these teachers and other school staff members return to the USA during the summer break. In this case no other insurance would need to be purchased from the state exchanges.
While you might be complying with the law, we all need insurance that does cover us. Most insurance purchased in the USA, including any you will be able to get through the Health Insurance Marketplace, does not cover the insured outside of the USA. And many times insurance purchased to cover a missionary in a foreign country does not cover them when they are in their country of citizenship. (The fine print on those insurance forms must be read). So I this case a missionary who has coverage in a foreign country returns to the USA for less than 3 months complies with US law but ends up uninsured during those months. Not a very attractive position considering health issues can pop up at any time.
Is there an option that will satisfy the individual mandate when in the USA and still give coverage to a missionary living as an expat overseas?
Yes there is and it is a very good option for missionaries. Listed in the exemptions from individual shared responsibility payment there is one exemption for being “a member of a recognized health care sharing ministry.” Sharing ministries are usually Christian organizations where the members help each other share healthcare costs. These are generally significantly less expensive than traditional health insurance and have the added benefit of providing coverage anywhere in the world.
My personal experience has been with Samaritan Ministries. My family and I have been members for over 5 years now and have been very happy with them. There are of course other healthcare sharing ministries that qualify for the exemptions; I just don’t have personal experience with them.
So in summary residing in another country automatically exempts a person from the individual requirement to carry health insurance. While this is a relief for many, the reality of missionary life usually includes travel back and forth between the country of service and the home country. There will likely be times when the missionary does need to carry health insurance while in the USA. The exception of health sharing ministries can work for a missionary both while they are abroad and when in the USA.
 | So you heard the call and are heading out to be a missionary? After your education and training the time has come to leave overseas and go to a foreign country. The airline tickets are purchased. Contributions and pledges are coming in. Now, before leaving, is the time to make sure that your financial situation is in order and that you understand what you will need to have prepared come tax time. The following tips should give you some things to consider and help you prepare your finances before leaving for a foreign country. |
1. As a missionary you are not exempt from US taxes. You must understand that US citizens need to file an annual tax return even when residing in a foreign country.
U. S. citizens are taxed on worldwide income. Don’t believe other missionaries who tell you that you are exempt from taxes. This is only partially true and depends on how much you earn during the year and whether or not you file the foreign earned income exemption on IRS form 2555. Regardless of whether or not you file the exemption, the majority of the missionaries must pay social security or self-employment tax on their net earnings. Improper planning in this area alone has caused many missionaries to return to the US and look for regular employment so that they can pay their accumulated tax debt.
2. Missionaries need to track their income and expenses for proper tax reporting.
As a missionary, you are basically operating a business, and as all businesses must keep track of how much they make and spend on the business, so must you. This made even more complicated because the expenditures are usually in a foreign currency and must be converted into US dollars for tax reporting.
3. Before packing up and moving overseas it is wise to line up financial and legal counsel
It is much more difficult to find good competent financial and legal help after you have moved to the middle of nowhere. You should seek counsel from the legal profession in areas such as setting up a will or living trust. What should be done if you are killed or injured in the foreign country? From a tax perspective you should find a tax preparer who understands the foreign earned income credit (form 2555) and the foreign tax credit (form 1116). If you are an ordained member of the clergy you may want to explore opting out of Social Security or receiving a housing allowance.
If you are not ordained you may want to consider becoming so before leaving for the field. If you are an independent missionary and not part of a large sending organization you may need to consider setting up a non-profit entity before you leave. This will allow contributors to receive tax deductions on their donations, resulting in a higher likelihood that you receive higher support for your mission endeavors.
1. Confirm with your employer that the W-2 was mailed and confirm your current address with your employer. It is possible your W-2 was sent to an old or incomplete address. If that is the case make sure to request the W-2 be sent again to a corrected address.
2. If you still have not received your W-2 by Valentine’s Day and you think your employer is intentionally not delivering it to you, call the IRS for help at 1-800-829-1040. Be prepared for a lengthy hold time and to give personal identifying information (usually includes the Adjusted Gross Income amount from your most recent tax return). If available, make sure to have your last pay-stub accessible.
3. Even though you have not received your Form W-2, you are still required to file your return by the end of the day April 17th 2012. You should use Form 4852 Substitute for Form W-2. You will need to estimate your wage and withholding as accurately as possible.
4. If after having filed your income tax using Form 4852, you subsequently receive your Form W-2 you will need to file an amended return. Amended returns are filed using Form 1040X.
If you need help with this type of issue or any other tax related matter, please don’t hesitate to contact us.
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When we see clients year after year, they often wonder why their refund or amount owed fluctuates. They do not understand how it can be different from prior the prior year. The disappearance of the Making Work Pay credit is a good example of why a refund or amount owed can be different. Take as an example a married couple who made $45,000 in 2010. On their 2010 tax return they received a refund of $650. In 2011 they made the same amount of money and expect to receive a similar refund. However, when their taxes are filed they owe nearly $150. What happened? Why is there such a big difference?
The difference is that in 2010 they received a refundable credit of $800 (MFJ) from the Making Work Pay credit that was applied to their tax liability. In 2011 that credit has gone away and now they owe instead of get a refund.
Many people who saw that they were getting a refund the last couple of years went to their employers and changed the amount of their paycheck withholding. If you did that, beware as you may have an even bigger tax liability in 2011. In the above example, the couple saw that they were getting refunds of $650 so they decided they would rather have the money during the year instead of sending it to the IRS. Because of this, they reduced their annual withholding by $650. When they file their taxes in 2011 they are surprised that instead of breaking even they now owe $1,300. This is a result of the Making Work Pay credit going away. They suddenly owe $650 more and they reduced their withholding by $650. This can come as quite a shock to the taxpayer.
Don't be angry at your tax preparer for not "getting you the same refund" as the previous year. There are many factors that come into play in calculating your taxes. The best thing to do is find out what changes are coming for the current tax year before you make any withholding changes with your employer. Don't be afraid to communicate with your tax preparer throughout the year.
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