Taxes for Americans Living in Germany
Germany is a favorite destination for Americans moving overseas. Thousands of US citizens live in Germany drawn to its culture, business-friendly atmosphere, a large American military presence in cities like Berlin, Essen, and Munich as well as numerous international company headquarters located in the country. Living as an American expatriate in Germany will affect your tax obligations since you will most likely be required to file taxes in Germany as well as in the US.
Hence, it is important to understand your tax obligations in Germany, but, at the same time do not forget your US expatriate taxes as well, which will be affected by the German tax system now that you are living there. Here at Universal Tax Professionals we offer the best US expat tax services to all US citizens living abroad in Germany. Here is a breakdown of what you need to know about your German and US tax obligations.
Who Needs to File?
If you are a U.S. citizen or resident alien, you are required to report your worldwide income to the IRS, regardless of where you live. This includes income earned in Germany. Generally, you must file if you meet certain income thresholds which are subject to change annually. You can find the current thresholds on the IRS website.
Key Forms and Deadlines
Forms
- Form 1040: The standard U.S. Individual Income Tax Return.
- Form 2555: To claim Foreign Earned Income Exclusion (FEIE).
- Form 1116: To claim Foreign Tax Credit.
- FBAR (FinCEN Form 114): Report of Foreign Bank and Financial Accounts if you have foreign financial assets that exceed a certain threshold.
Deadlines:
- April 15: Standard deadline for filing U.S. taxes.
- June 15: Automatic two-month extension for U.S. citizens living abroad.
- October 15: If you filed for an extension.
Note: It’s essential to check the IRS website for the most up-to-date forms and deadlines.
Currency Conversion
Report your foreign earnings in U.S. dollars when filing. Use the yearly average currency exchange rate or the rate on the day you received the income, as per IRS guidelines.
Tax Treaties and Agreements
The US and Germany have a bilateral tax treaty that aims to prevent double taxation and tax evasion. Familiarize yourself with this treaty to understand any benefits or obligations that apply specifically to you.
Ways to Avoid Double Taxation
1. Foreign Earned Income Exclusion (FEIE)
If you qualify, you may be able to exclude a certain amount of your foreign earned income from U.S. taxation using Form 2555. For 2022, the maximum exclusion amount was $112,000.
2. Foreign Tax Credit
If you pay taxes to the German government, you may be eligible to claim a foreign tax credit on your U.S. tax return using Form 1116.
3. State Taxes
Some states require you to file a state tax return even when residing abroad. Check your state’s rules to avoid any surprises.
Table of Contents
FBAR and FATCA
FBAR (FinCEN Form 114)
If you have financial accounts in Germany that exceed $10,000 at any time during the calendar year, you must file an FBAR.
FATCA (Form 8938)
The Foreign Account Tax Compliance Act requires certain U.S. taxpayers holding foreign financial assets to report those assets to the IRS.
Professional Help
Because US tax laws are complex and filing from abroad can introduce unique complications, consider hiring a tax professional experienced with expatriate issues. They can guide you through the process and help you optimize your tax strategy.
Conclusion
Filing your US taxes while living in Germany is a mandatory but manageable process. Understanding the forms, deadlines, and ways to avoid double taxation can simplify your filing experience. Keep abreast of changes in tax laws and consider hiring a professional to assist you. This way, you can focus on enjoying life in Germany without worrying about the IRS.
FAQ for US Citizens to File Taxes While Living in Germany
Do I need to file U.S. taxes if I live and work in Germany?
- Yes, U.S. citizens and green card holders are required to report their worldwide income to the IRS, regardless of where they live.
What are the key deadlines for filing U.S. taxes?
- The standard deadline is April 15. If you’re a U.S. citizen living abroad, you get an automatic extension until June 15. You can also apply for a further extension until October 15.
What currency should I use when reporting income?
- All income must be reported in U.S. dollars. You can use either the yearly average exchange rate or the rate on the day you received the income.
What are the key IRS forms I should be aware of?
- The key forms are Form 1040, Form 2555, Form 1116, and FBAR (FinCEN Form 114).
What is the Foreign Earned Income Exclusion (FEIE)?
- The FEIE allows qualifying U.S. citizens to exclude a certain amount of their foreign earned income from U.S. taxation. For 2022, the exclusion amount was $112,000.
What is the Foreign Tax Credit?
- If you pay taxes to the German government, you can claim a foreign tax credit on your U.S. tax return, potentially reducing your U.S. tax liability.
Do I need to file state taxes?
- It depends on your last state of residence in the U.S. Some states require you to file a state tax return even when living abroad, so it’s best to check the specific rules for your state.
Is there a tax treaty between the U.S. and Germany?
- Yes, there is a bilateral tax treaty aimed at preventing double taxation and tax evasion. This treaty might offer you specific benefits or obligations.
What is an FBAR?
- If you have financial accounts in Germany that have an aggregate value exceeding $10,000 at any time during the calendar year, you must file an FBAR (FinCEN Form 114).
What is FATCA?
- The Foreign Account Tax Compliance Act (FATCA) requires U.S. taxpayers holding foreign financial assets exceeding certain thresholds to report those assets to the IRS using Form 8938.
Should I hire a tax professional?
- Due to the complexity of U.S. tax laws and the additional complications of filing from abroad, it’s often recommended to consult with a tax professional experienced in expatriate taxation.
Where can I find more information?
- For the most accurate and up-to-date information, consult the IRS website and the U.S. Embassy & Consulates in Germany
