# tax for expat retirees in Germany



## kasselad

Hi, I am a long time resident of Germany approaching retirement and am wondering how that works. Up until now, we have gotten the foreign earned income exclusion which made everything easy. But retirement benefits are not "earned income". I found this quote in IRS publication 915: "Under tax treaties with the following countries, residents of these counties are exempt from US tax on their benefits." Germany is listed. Can it really be that easy? Thanks for any advice.


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## BBCWatcher

Almost. You'll still have to file a U.S. income tax return because you'll presumably meet the filing threshold. And you'll still report your German government social security income on your U.S. tax return, which is what I assume you (and the treaty) are referring to. But then you'll also, in the same U.S. tax forms, take a treaty position to exclude that income from U.S. income taxation. Generally you do that using IRS Form 8833 attached to your IRS Form 1040.

I'm describing the general procedure in broad, perhaps oversimplified terms, but that should be about what happens, yes. You may have other forms of income that are not excludable. However, Germany is a comparatively high income tax jurisdiction, and you will still be able to use the Foreign Tax Credit to account for foreign (presumably German) income tax you pay on those other forms of income.

By the way, the U.S. and Germany have a social security treaty. The result is that if you contributed nontrivially to the U.S. Social Security system within any two calendar years (or parts of two calendar years), it's likely you can qualify for some level of U.S. Social Security retirement benefits. So don't forget to collect that if you're eligible, even if it's a small amount. Money is money, after all. If you don't need that money right away, and if you're in good health, it's probably wise to wait until age 70 to collect in order to boost your monthly benefit amount.


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## kasselad

*thanks so much*

Dear BBC watcher, 
Thanks for your reply with its valuable information. I had contacted the IRS in Philadelphia in their international department but they weren't nearly as helpful! I did look into social security benefits, however, it is really such a small amount, I'll wait and check it when I'm 70 as you suggested. All the best, Kasselad


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## Bevdeforges

There are actually a number of ways to handle a German (or other non-taxable in the US) pension. I know some folks are advised to report the amount on line 16a of the 1040, which asks for pensions and annuities - and then you simply carry over to space (16b) that 0 is taxable. (That's how some of the tax software systems treat it.)

Just be careful, because with US Social Security benefits, 85% of your benefit is taxable in the US if you file as married, filing separately. (You didn't say if you were married or not, and if so, whether to another American or to a German national.) Doesn't matter if your other income that is taxable in the US amounts to "peanuts" but just something to keep in mind.
Cheers,
Bev


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## kasselad

Thanks, I will keep that in mind! I am married to an American but we both came to Germany when we*were very young, so I think any amount of social security would be negligible. But it's worth checking out at some point. All the best!


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## beppi

You'd have to tax your retirement benefits in Germany! (And that's even more complicated than the USA system!!!)


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## kasselad

Hi, I have to do that anyway since I am a resident of Germany and have paid taxes here for my entire working life. You are right about it bring complicated, though. I have done my own American taxes but not my own German taxes. We have to pay an expert every year!


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## BBCWatcher

And, to be clear, your U.S. Social Security retirement benefit may be U.S. taxable, but not at an 85% rate. (I was thrown by that 85% figure when I read it quickly in Bev's reply. Maybe I'm the only one. )

Anyway, sounds like a good plan to me (waiting until age 70) if you're in good health. Also please note that your legal spouse likely qualifies for a spousal benefit from U.S. Social Security, so when your spouse reaches the eligible age that's another benefit to collect. Yes, you might pay a bit of U.S. income tax on those retirement benefits, but money in your pocket is still money in your pocket, and you're going to have an annual U.S. tax form to file anyway.


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## Bevdeforges

BBCWatcher said:


> And, to be clear, your U.S. Social Security retirement benefit may be U.S. taxable, but not at an 85% rate. (I was thrown by that 85% figure when I read it quickly in Bev's reply. Maybe I'm the only one. )


Read it carefully - 85% of your benefit is taxable, no matter what other sources and amounts of income you have.



> Anyway, sounds like a good plan to me (waiting until age 70) if you're in good health. Also please note that your legal spouse likely qualifies for a spousal benefit from U.S. Social Security, so when your spouse reaches the eligible age that's another benefit to collect. Yes, you might pay a bit of U.S. income tax on those retirement benefits, but money in your pocket is still money in your pocket, and you're going to have an annual U.S. tax form to file anyway.


I'm still looking into the details, but be aware that your US SS benefit will be cut if you are eligible for a foreign pension. And, I'm not sure how the taxation works for the spousal benefit. If the spouse claims it as an NRA, there is the risk of having 30% withheld, which will have to be claimed back each year with an NRA filing. Or, perhaps you can file jointly - though if you have other sources of income that would have to be reported, you may want to run the numbers to see whether the savings is worth the hassle.
Cheers,
Bev


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## kasselad

I really appreciate all of the great advice. We had been worried about the situation after retirement - the reports of FATCA negatively impacting expat retirees, people giving up their citizenship, which we would really hate to do, being faced with possible double taxation, etc. It is, of course, aggravating and dissapointing, that the U.S. puts itself in the same category with only one other country,Eritrea, in chasing its citizens all around the world because of taxes from monies earned by nonresident citizens.


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## Bevdeforges

Welcome to the club. And the really annoying thing is that even the IRS isn't too sure how things "should" be handled for those of us living overseas. (Not that any advice they give out to the folks back in the US is considered definitive, either.) 

Most tax treaties (and I admit I haven't looked at the German one yet) grant the right to tax a government pension to the government paying the pension. Seems only right, I suppose. FATCA was enacted to fight international tax evasion and is directed primarily at "offshore investments" particularly the bogus kind that folks with too much money on their hands are likely to indulge in. 

The IRS publication on Social Security benefits (Publication 915) is pretty clear, however, on the treaty provisions and, in fact, lists Germany as one of the countries where "U.S. citizens who are residents of the following countries are exempt from U.S. tax on their benefits. "
Cheers,
Bev


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## BBCWatcher

Um, "85% of your Social Security benefit is taxable" is a _good_ thing. It means 15% is completely U.S. tax free! And "taxable" then means "subject to ordinary income tax rates," _not_ that the IRS confiscates 85% of your benefit. For example, if you pay an 18% net effective tax rate on that 85% -- a reasonable sort of figure -- then the total effective tax rate drops down to 15.3%. That's pretty good!

Money in your pocket is still money in your pocket. There's absolutely nothing wrong with that concept. I recommend collecting it.  And sure, pay the relatively modest U.S. income tax owed on that income.

Yes, there's a Windfall Elimination Provision (WEP) that reduces U.S. Social Security retirement benefits if you're collecting a foreign government pension or retirement benefit. The U.S. Social Security Administration will calculate that for you with your truthful answers to their questions, and their retirement benefit estimate will be net of the WEP.

The U.S.-Germany social security treaty probably overrides general withholding with respect to the spousal benefit. But even if it doesn't...it's still money in the spouse's pocket, and money is still a good thing. Withholding, if applicable, may or may not be recoverable as a refund with an ordinary U.S. income tax filing.

To net it out, most people working a lifetime (give or take) overseas are quite surprised to learn that they qualify for _any_ retirement benefits from the U.S. Social Security Administration, much less an additional benefit for their foreign spouse who never contributed to U.S. Social Security. But they do, often, and that's a wonderful thing. The net amount of money varies, but it's great that there's a benefit!


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## Bevdeforges

For the case of Germany, we're clear. US Social Security is not taxable by the US to US citizens resident in Germany (presumably because Germany will "do the honors" in taxing the income). What's still unclear is the US tax status of a NRA spouse married to a US citizen resident in Germany if the spouse is claiming the spouse benefit pension. 

But I suppose that's another question for another time. Our OP here has not indicated if/that he is married to an NRA so we may just be blowing hot air here anyhow. I'll continue to do my research and let folks know what (if anything) I come up with.
Cheers,
Bev


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## kasselad

Hmm, now that I look at that sentence in Publication 915 again, I think it might only be referring to U.S. Social Security benefits. My concern is the pension money I will receive from various German pension benefits (3 sources: the German equivalent of social security, another public pension fund held for musicians, and a company pension from Lufthansa airlines). I'm now reading the protocol from 2006 amending the U.S.A. - Germany tax treaty of 1989. It is written in (surprise, suurpise!) extreme legalese which is going to take me a while to try and figure out. I'll be back after I can possibly make some sense of it.


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## Bevdeforges

If there is one available, try skipping the protocols and read the "Technical Explanations" instead. Despite the title, those tend to be more comprehensible than the protocols. 

Normally, pensions paid by entities in your country of residence are taxed by your country of residence. And that fact that Germany seems to have claimed taxing rights on US Social Security, I strongly suspect they have "first dibs" at least on the German pensions.
Cheers,
Bev


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## kasselad

Hi Bev, your tip to read the technical explanation was excellent. The section in the protocol is almost impossible to figure out but the technical explanation very clear: "Paragraph 5 provides for exclusive residence-country taxation of social security benefits and similar public pensions." In looking through all this, I noticed that the U.S. claims the right (and agreed to by Germany) of taxation of those who give up their American citizenship for a period of ten years after that renunciation. I hope those taking that step know this.


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## BBCWatcher

That's all good news you found about your (and your spouse's) Social Security benefits. Well done.


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## xxo

Hello fellow americans. I'm currently struggling with filing my taxes too. I came to Germany as a 10yo and have been here since. 2 children and married (all of them are german).
Sadly to say, but my english kinda sucks. Sure, I can communicate but the lack of practice is not helping the matter. Business english is like a different language to me.
I feel overwhelmed at the moment and can't find a real starting point. Right now, I am trying to find someone who was in the same situation - perhaps something like a roadmap from here to where I need to be. Does my wife need an ITIN?
It is quit frustrating at the moment. I've been starring at this screen for hours now. Need a break - headache already


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## Bevdeforges

Unless your wife is also a US citizen, no, she doesn't need an ITIN - and actually, if she WERE a US citizen, she'd need a US Social Security number. Which you do, too, by the way.

First things first. Do you have a US Social Security number? If you don't have that, you can't file anyhow.

Next thing to consider is what are your sources of income? A job? Bank interest? Other investments? Do you have any income coming from the US? The source of your income will give you an idea of the risk level you're looking at, and the likelihood you will actually have to pay anything to the IRS. As long as you don't owe anything, it's unlikely anyone is going to track you down over a failure to file. (And before anyone jumps on me for "inciting someone not to file" I say this only because it removes the time pressure to meet certain deadlines if you owe nothing in the first place.)
Cheers,
Bev


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## xxo

I have a SSN, my wife doesn't. My only income is from my "office job" in germany and a few bucks for selling company stocks. I pay taxes in germany for both sources. I am fairly sure that I don't owe taxes. My bank informed me that they have to report my finances to the IRS. Because of that, I looked into the matter and discovered that I have to file my taxes even if I don't have to pay any...


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## Bevdeforges

Yup, that's about how it works. The income from work is basically pretty easy to deal with. Fill in a form 2055EZ, taking the exclusion for your entire "earned income" (i.e. salary). As far as the "few bucks" for selling stocks - if the "few bucks" is under your personal exemption plus the amount of the standard deduction, you're home free. (Well, still are supposed to file, but won't owe any taxes.)

But to be honest, even if you owe a little bit of taxes, it is going to be a LONG time before the IRS starts matching up all those bank statements they're getting with who has or hasn't filed a return recently. And, unless the amounts involved are "impressive" somehow, there are just too many legitimate reasons you might not have filed.

In your situation, I'd file as simply as possible, demonstrating that you owe nothing. 
Cheers,
Bev


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## Nononymous

Welcome to the curse of US birth. I'll repeat stuff said on earlier posts. You would likely owe the US nothing, so there would not be any penalty for not filing tax returns (a percentage of zero is zero). 

If your bank balances were high enough you'd potentially be subject to fines for not filing FBAR (a.k.a. FinCEN) forms, but there's no evidence of those penalties being assessed against folks who didn't know about the requirement; it's also not clear how well the US can collect penalties from non-residents.

So, you basically have three different approaches going forward:

1. Full compliance - enter the streamlined program, which involves catching up on three years of tax returns and six years of FBARs or something like that.

2. "Quiet disclosure" - begin filing this year sometime, both tax return and FBAR, and continue to file going forward, but don't worry about past years. 

3. Off the radar - ignore this. The risk to you is very low. Even if your bank sends off your name and account number to the US government, you may not hear a thing. If you have no US assets or income, no interest in living in the US, there's no reason to play their game. (All that being said, deliberately ignoring a law may be culturally difficult for someone raised in Germany.)


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## BBCWatcher

Are the kids U.S. citizens also?


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## Nononymous

BBCWatcher said:


> Are the kids U.S. citizens also?


While I ought to wait for the OP to reply, if this is true:



> I came to Germany as a 10yo and have been here since.


Then presumably the kids would not have US citizenship.


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## BBCWatcher

No, we cannot presume. In particular, there are U.S. military bases in Germany.


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