# Paying US Taxes as a German resident



## Maya RP (Jun 10, 2021)

Hello, I am struggling with filing US taxes as a permanent resident of Germany. This is my first time doing so. I work as a self-employed teacher for various Volkshochschule here. My 2020 income was very low (around 30,000 US dollars), and I have already paid 4,000 euros in tax to Germany for 2020. 

What forms do I need to fill out apart from the 1040? Should I apply for FEIE or FTC? Also, do I need to fill out form SE for self-employed workers if I work for one institution (but am not 'employed' by them)? If so, I have read that I need a 'Certificate of Coverage' to prove that I am paying into the Pension and Health Insurance here in order to avoid paying self-employment tax Where can I obtain this? .

Any help would be much appreciated.


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## 255 (Sep 8, 2018)

Maya RP -- Generally, the FEIE is more beneficial, but you can certainly calculate your taxes both ways and see which is more advantageous. The FEIE maximum for 2020 is $107,600, so all off your $30K income will be excluded.

In addition to form 1040 -- normally self-employed workers file a Schedule C. If you are taking the FEIE, you'll need form 2555 and if you do the FTC, you'll need form 1116. You'll also need Schedules 1, 2, 3, A, & B, depending on your individual situation.

As far as the "Certificate of Coverage" -- you might try the following address: 
Landesversicherungsanstalt Freie und Hansestadt-Hamburg
Friedrich-Ebert-Damm 245
22159 Hamburg
Germany 

For you reference: International Programs - Totalization Agreement with Germany (ssa.gov) & International Programs - U.S.-German Social Security Agreement (ssa.gov) .

You will not need to file Schedule SE, if you are utilizing the totalization agreement to exempt your self, but you should include a statement stating that you are exercising your treaty rights and are covered by Germany's social security, along with the statement of coverage. There are also instructions on what do do if you fail to get a certificate here: Self-Employment Tax for Businesses Abroad | Internal Revenue Service (irs.gov) . Cheers, 255


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## Maya RP (Jun 10, 2021)

255 said:


> Maya RP -- Generally, the FEIE is more beneficial, but you can certainly calculate your taxes both ways and see which is more advantageous. The FEIE maximum for 2020 is $107,600, so all off your $30K income will be excluded.
> 
> In addition to form 1040 -- normally self-employed workers file a Schedule C. If you are taking the FEIE, you'll need form 2555 and if you do the FTC, you'll need form 1116. You'll also need Schedules 1, 2, 3, A, & B, depending on your individual situation.
> 
> ...


Wow, thank you so much for taking the time to provide such a detailed reply. You are a godsend!


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## Moulard (Feb 3, 2017)

255 has it mostly covered.. but a little bit of additional stuff ...


If you were physically in Germany for less than the full 366 days of the 2020 tax year the $107,600 is reduced proportionally.
If you choose to use Form 1116 you need to also complete Form 6251 (but in your circumstances won't actually have to file it.. but you might in later years, so be mindful of it)
Don't forget that you may have a FinCen Form 114 filing requirement (not a tax form per-se as it is not file with your tax return - again you may not be required to file now, but you might in future)
You will always have to file Schedule B because of part III even if you have no interest or dividend income.


On the FEIE vs FTC question...

As a very broad principle if the effective income tax rate on wages is higher in the country where you live than the effective US Federal rate then it will often be better to use Foreign Tax Credits. If you live in a lower taxing jurisdiction then the FEIE is more effective at reducing any potential US tax liability.

I say effective tax rate, because you have to factor in things like deductions, exclusions and the like. I also specifically call out the wage component of income 1) because you can only exclude earned income (primarily wages, salary etc) and 2) some countries have a differential tax rates based on income category.

FEIE is definitely easier, but you need to be aware that non-excluded and non-deducted income is basically taxed at the marginal rate applicable for your gross income. If you were in Germany for only part of 2020 then be mindful of the fact that you cannot file your return until you have been physically present in Germany long enough to qualify. This may mean you need to apply for an extension or even an actual letter requesting an extension so that you can file once you hit eligibility.

FTCs can be better long term because you can carryover excess German taxes paid for 10 years. For most people they sit unused until they expire, but it can be handy if you ever have income that is untaxed by Germany but taxable by the US. Its more complicated in that you need to pro-rate income, deductions, taxes etc into each category and maintain records for 10 years. Its also not entirely effective at reducing US taxes because of the way you have to categorize it.. you can have plenty of tax credits in one bucket and not enough in another and end up with a tax bill..

You can actually use the FEIE to exclude wages, and FTCs for non-wage income, but once you start using FTCs for wages you cannot go back to the FEIE for five years. This can be problematic if you move to a country that has lower tax rates than the US.


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