# Complicated, can you help? Foreign Earned tax question



## jennifers81 (Jan 30, 2019)

Hi there!

I was an american living in Germany until Jan 1 2018, when my german maternity leave started. I came back to the USA to have my baby and because I had maternity benefits, I received a paycheck each month until March. We decided to stay in the USA and now I am just trying to figure out our 2018 taxes.

My husband thinks we qualify for the foreign earned tax credit, where they only tax above 200k, but what he doesn't realize is that is for people who are living abroad. And since we are no longer living abroad, I don't think that works for us. It has worked for us in previous years.

Its confusing because I wasn't technically working abroad, but because I had been previously working I was allowed 3 months of pay when my maternity leave started. I paid german taxes on all of this money. Is my understanding correct that I also need to pay US taxes on all of this as well? 

Thanks


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## jennifers81 (Jan 30, 2019)

Sorry I didn't mean tax credit but the Foreign Earned Income Exclusion.


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## Nononymous (Jul 12, 2011)

A couple of thoughts.

If you moved back to the US on 1 January 2018 then you cannot claim the FEIE for any income earned in 2018. However, I think you can still claim FTC (foreign tax credit) for any German taxes paid on benefits received after you moved to the US.

Not that it matters, but maternity benefits might not be classed as earned income, in which case the FEIE wouldn't apply anyway, but you've still got the FTC option. Alternatively, they could be considered a form of welfare benefit that isn't taxable by the US (as is the case with unemployment insurance). 

Or you can simply choose not to report the income. It's not like the IRS would know anything about it.

It's interesting that you were able to collect maternity benefits after giving up German residency. That surprises me.


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## Bevdeforges (Nov 16, 2007)

Basically, what Nononymous said. 

The FEIE only applies to earned income (i.e. salary) earned while resident abroad. Once you come back to the US, you gave up your residence in Germany.

If your maternity pay came from your employer, then the Foreign Tax Credit can be applied, no problem. If your maternity pay was a government benefit, then basically it's not taxable (as a "welfare" benefit) in the US.

Take a look at IRS form 1116 for the Foreign Tax Credit and what is required.


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## jennifers81 (Jan 30, 2019)

Thank you everyone for your replies. I will look into everything you shared. With the german maternity benefits, you get a year of paid leave. But that way that it works is that you stop working 6 weeks before baby, and you are paid your normal salary until 8 weeks after the birth. So 14 weeks total. Its something that is paid by the employer AND your health insurance. Once that time is up you can apply for a different type of pay and that I think is subsidized by the government and caps out at 1800 euros a month. Because I wasn't there, I did not claim this.


I also received a bonus in 2018 for work I performed in 2017.

It seems like the pay by the health insurance would not need to be claimed because it is a government benefit, but that maybe accounts for 10-15% of my total income during that period.

Would this be a situation that would benefit from "married filing separately"?


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## Nononymous (Jul 12, 2011)

I'm not sure that married filing status really matters since it's German-source income on which you've already paid German taxes, so you aren't going to owe the US anything one way or another.


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## jennifers81 (Jan 30, 2019)

Ok thank you. Initially I had input my husbands W2 and we had a federal refund of about $6700. But after I entered a number of 40k in foreign income we owed 12k! But of course thats before I knew about the foreign tax credit, so hopefully it offsets it equally. I am waiting on my german employer to send me wage statements. 

This past summer we FINALLY paid off a 3 year old IRS tax debt which peaked around 7k...I really don't want to owe again!


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## Nononymous (Jul 12, 2011)

German taxes being higher than US, in general, means you will almost certainly owe nothing to the IRS for that German income. If you should choose to report it, of course.


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