Kind of doesn’t matter how the institutions deal with our pre-tax contributions. When you are like the OP and our family and you have a housing allowance and in some countries a cost of living allowance on top of that, we are not going to come up as showing much “need” even if the base salary isn’t that high. The state department sets the housing allowance for various locations around the world and it is adjusted for family size. Our housing allowance is ridiculous, but that is because the rent in this country is ridiculous. The apartment we get for that money is certainly nice enough but fairly basic, and not anything like what we could get for the same amount money in the US, even in a fairly expensive city. We have to put the amount we get for housing on the FAFSA and CSS Profile and once you add that to the income we are quickly launched out of the “need” zone.
If someone in our situation doesn’t want to fund that 250,000+ four year program out of pocket, the only option is to seek merit. It is just the way it is. Certain schools are just not an option in that case. I am just glad that I learned this fact before my daughter applied to college. Seeking merit worked extremely well for her.