US Expat Taxes for Americans Living in Germany – What You Need to Know
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?
All US citizens and green card holders who earn a minimum of $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
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.
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).
“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 are paying income tax in Germany, there are several mechanisms that prevent you paying tax on the same income to the IRS.
The two primary ones are the Foreign Earned Income Exclusion, which allows you to exclude the first around US$100,000 of foreign earned income from US income tax if you can demonstrate that you are resident in Germany, and the Foreign Tax Credit, which allows you a dollar credit for every dollar of tax you’ve paid in Germany. The Foreign Tax Credit is typically a sensible option if you pay more tax in Germany than you would owe in the US, as you can carry the excess tax credits forward. Don’t forget though, even if you don’t owe any tax in the US, if your income is above US$10,000 (or $400 for self-employed individuals) you still have to file.
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 taxes – what you need to know
German tax returns are due by July 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.
Americans are considered residents in Germany for tax purposes if they have a residence in Germany, or if they spend over 6 months in Germany in a single year, or a consecutive period of 6 months at all.
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.