# USA/Germany: US taxes while receiving German welfare among other income



## Friedemann

Hi, unfortunately, my last thread was closed before I got to post my update/answer after the thread had gone a little off topic. I found no option to request re-opening it and am aware that it's mostly not ok to continue closed threads. 

Here's my update/answer, I still think this discussion might be useful for people in similar low-income situations (in Germany) and there is little information on this: 

"Returning to the topic of my initial post, if I may, I have an update.
I followed the suggestion to use tax software and, after being unable to install the downloaded Taxact software I went ahead and used their online service. I included my unemployment benefits in 2014 and came up with an "amount you owe" of $722 - not what I was expecting!

Now I'm pretty much set on NOT filing at all. My reasoning:
- I received numerous different kinds of German unemployment and welfare payments and those should be non-taxable in the US if I am reading the convention for the avoidance of double taxation between the US and Germany correctly (Article 19, part 2) [sorry, not allowed to post links, yet]. 

_"2. Social security benefits paid under the social security legislation of a Contracting State and other
public pensions (not dealt with in paragraph 1) paid by a Contracting State to a resident of the other
Contracting State shall he taxable only in that other Contracting State. In applying the preceding
sentence, that other Contracting State shall treat such benefit or pension as though it were a social
security benefit paid under the social security legislation of that other Contracting State."
_

Now what qualifies as social security in Germany? I'm just going to go with Wikipedia on that one.
When I deduct the various kinds of non-taxable social security - income from my overall income I have a taxable income left of well below the 10,150 for singles under 65.

- In any event, I received no more than the absolute minimum income in 2014 for German standards, that hopefully makes me a less than juicy target for tax inquiries. 

To answer *BBCWatchers question* about why I would want to file while below the threshold:

None of the provided reasons apply in my case. I certainly do not want to give up my citizenship, even if in the coming years paying both a US and German tax advisor will sting financially.

My reasons were:

- Firstly, the tax attorney I spoke to through Greenback Expat Tax said it would make sense to simply "establish a record" with the IRS in order for them to know I am aware of my (general) obligations to file taxes and to reduce my worries they might investigate me one day. He recommended it, even though he deemed me to be below the threshold after going over my income for 2014, 2013 and 2012. Let's just be honest: The German in me would really love to just file in any case and have that warm feeling of having reduced an unexpected knock at the door from "the authorities". I do that with my German taxes every year and it makes me feel better. I am sure many in this forum are familiar with the shock of finding out they've neglected their US tax duties and with the desire to quickly remedy that by showing they're willing to comply. The easy and carefree way for that would be a full "streamlined process" but that costs around 1500 which I cannot afford at the moment.

- Secondly, every time I approach this subject I get confused and end up doubting I'm below the threshold after all. Case in point, I filled out the 1040 with Taxact and I ended up with almost a 1000 in taxes owed. Almost every time I read up on taxes in forums etc. I get a different take on my situation (similar to the confusion that surrounds FBARs even though they should be fairly simple).

More on my *background*:

During the last 2+ years, I received social benefits/unemployment benefits from 5 (!!) different German institutions. All of them, of course, tried to make each other pay and the various application processes took months... overlapped... leading to overpayment and compensation across the institutions. There was money from my Krankenkasse (Mandatory health insurance), the Jobcenter (unemployment), the Agentur für Arbeit (unemployment/welfare), the Sozialamt (welfare) and finally the Rentenversicherung (disability pension). Mixed in were wages (certainly below the threshold), a minor German tax refund, §1500 from subletting a room and so on and so forth. I'm sure you're beginning to see how big the mess and my confusion gets when I try to fit all this to match the prompts of tax forms/software geared towards US types of income.

*Lastly, on Taxact:* I have to admit I was thoroughly confused at times while being guided through the various documents by the Taxact website. As has been mentioned here, for someone unfamiliar with the terminology it's not easy to make the right choices or "clicks". Taxact does include information and choices for expatriates (for example offering you to easily put in foreign addresses) but not enough to make it foolproof by any means. Certainly not enough for highly complex situations.

Again, thank you all for posting valuable information, it's much appreciated!

TL;DR 
Thank you for the input! I was unable to fill out the 1040 correctly and decided to not file after all and hope for the best."


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## Nononymous

Friedemann said:


> I am sure many in this forum are familiar with the shock of finding out they've neglected their US tax duties and with the desire to quickly remedy that by showing they're willing to comply.


I suspect that an equal if not greater number react by saying "This is complete bullsh*t, they'll never find me, like hell I'm filing US taxes."

But I don't want to divert the thread so I'll stop now.


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## Bevdeforges

Thanks for coming back to update us on how you're doing. I honestly thought of splitting the thread to move the extraneous stuff off into a separate thread of its own, however the tools we have here for doing that aren't the greatest and I actually have a life offline 

In any event, what I would refer you to is the IRS publication 525, page 27, where it says:


> Do not include in your income governmental
> benefit payments from a public welfare fund
> based upon need, such as payments due to
> blindness.


And although there are numerous instructions stating that both State and Federal unemployment benefits are taxable and should be declared as income, foreign unemployment is actually a governmental benefit payment and should rightly fall under this same exclusion. (Or so say a couple of tax folks I've talked to.) Have had a tax professor back this point of view, based on the difference in how unemployment benefits are "paid for" in Europe vs. in the US. (Long story, another time...)

Be a bit careful about the use of the terms "social security" and "pension" in tax literature. In the US Social Security is pretty much limited to retirement pensions. And pensions are also considered to be retirement based only. 

You're right in that even TaxAct or other tax preparation software can be difficult to impossible to use if you're not familiar with standard US tax terms and concepts. 

But don't let your German side overwhelm your good old practical American side. US tax law is open to all sorts of interpretations - there is no one "correct" way to handle any specific tax situation. (Unlike the laws in Germany - I used to live there, too.) If you're under the threshold, don't file. (There's even a place somewhere on the IRS website where they say this, but I don't have time right now to search for it.)

Anyhow, sorry about closing "your" thread, but when it veered onto Corporate taxes and transfer pricing, it dawned on me that we'd really gone off track.
Cheers,
Bev


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## Friedemann

Thank you for the much appreciated encouragement! I'm beginning to understand that tax law is not such a clear cut issue after all. I wish it was. I should have had the courage to post here a long time ago - it probably would have saved me many many hours of worrying.


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## bs777

@ Friedemann:

Hi, I'm in a similar situation an I'd like to know how it turned out for you.

I've also received various benefits (Krankengeld, Übergangsgeld, Alg1, Alg2).


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## Friedemann

Hi bs777,

sorry to hear you're in difficult situation, as well. 

I am currently not able to review my paperwork and it might take 1 to 2 weeks to do so. I'll try to get back to you as soon as possible.

Best regards


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## Friedemann

Update
So here is what i did. 

I payed a tax lawyer from greenbacktaxservices for a skype call and advice. But it turned out he was much less familiar with expat tax laws then he advertised. I definitely recommend picking a tax advisor based in Germany. 

After reviewing the tax treaty documents between Germany and the US. My advisor came to the conclusion that all my German "social security payments" are tax exempt. There was still the issue of me never having had filed before, even when I back when I was employed.

We came up with the following strategy. I ended up filing a 1040NR-EZ form and writing a short cover letter to the IRS. It basically said: I apologize I haven't filed taxes up to now. I wasn't aware of the obligation to do so in both Germany AND the US. Now that I am aware of that obligation I am now filling for this year, just to "establish a record" with the IRS and even though I am below the filing threshold. 

So, I only filed for that one year. And I will file again as soon as I am off disability/social security which will happen  When I do, I will seek the advice of a Germany based tax advisor.

I give no guarantees that what I did was the correct way to do it or even advisable. But that's what I did in 2015 ( I filed for 2014 ) and I haven't heard back from the IRS since. So I hope, you know, "we're good" .

I hope that helped a little. Good luck to you!


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