There are an estimated 210,000 Americans living in Germany.
Living in Germany is an incredible experience for a variety of reasons – the history, the eclectic culture, the food, wine, and beer, and the festivals to name but a few. As an American expatriate living in Germany though, what exactly do you need to know regarding filing US expat (and German) taxes?
The good news is if you are already paying income tax in Germany, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If your income is over US$10,000 (or $400 for self-employed individuals), you must file form 1040. While any tax is still due by April 15th, expats get an automatic filing extension until June 15th. This can be extended still further online until October 15th.
"To improve the economic situation and infrastructure in the five 'new' eastern states of Germany, the German government is levying a 5.5% solidarity surcharge tax for an indefinite period. The surcharge is imposed as a percentage on all individual income taxes."
If you have foreign assets worth over US$200,000 (per individual), excluding a home owned in your own name, you also need to file a form 8938 declaring them.
If you had more than US$10,000 in aggregate in one or more foreign bank accounts at any time during the tax year, you also need to file FinCEN form 114, sometimes known as an FBAR (Foreign Bank Account Report).
The US and German governments share taxpayer info, while German banks pass on their US account holders' account info to the IRS, so it's not worth being economical with the truth or burying your head in the sand. The penalties for tax evasion for expats are tough to say the least.
If you're a US citizen or green card holder (including dual citizens) and you have been living in Germany for some time but weren't aware that you should be filing a US tax return, don't worry: there's a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any fines. It's better to do this soon though, before the IRS comes to you.
German tax returns are due by May 31st, or, if your return is prepared by an accountant, by December 31st. If you're employed by a German company though and your income is taxed at source, you are not required to file a return. That said, many people do anyway, as after claiming certain allowances (such as for child support) they may be entitled to a refund. The German equivalent of the IRS is called the BZSt (Bundeszentralamt für Steuern), and the German tax return form is called form ESt 1.
German income tax rates are relatively high compared to the US, so for many people it will make sense to claim the Foreign Tax Credit. Alongside income tax, there is also a 'solidarity tax' of a maximum of 5.5% of the income tax you owe. German income tax rates range from 0% to 45%.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in Germany, that you contact an expat tax specialist.