Not all countries are equal - tax treatment differs if the country has a Social Security Agreement with the U.S.
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.
|Australia ||Greece ||South Korea |
|Austria ||Ireland ||Spain |
|Belgium ||Italy (only Italian citizens) ||Sweden |
|Canada ||Japan ||Switzerland |
|Chile ||Luxembourg ||UK |
|Czech Republic ||Netherlands || |
|Denmark ||Norway || |
|Finland ||Poland || |
|France ||Portugal || |
|Germany ||Slovak Republic || |
If the only source of income is self-employment in a country with a Totalization Agreement, please be aware that the IRS may request a Certificate of Coverage from the resident country Social Security administration.
If you are not covered in the resident country than U.S. SECA tax cannot be exempt. If you are self-employed and live in a country without a Totalization Agreement, then U.S. SECA tax must be paid, even if you paid into the Social Security system of the non-US country. However, you may still utilize this amount as ‘Foreign Tax Paid’ and use it for calculation of the foreign tax credit. If you choose to reside in a low-tax country like Hong Kong or Singapore, this is especially important.