# US company hiring in Germany and tax exemptions



## SSapro20

Hi I got an offer for a job from a US company.They can hire me as a Local National in Germany or on US payroll ,I have to pay only SS and Medicare (but I am on my husband insurance anyway).So what should I choose?? Of course I live in Germany so I pay bills in euro.I will be exempt on tax withholding because I am overseas. .I am confused about this situation..Any advice on this??


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## Bevdeforges

What is your nationality? Being on the US payroll is only an advantage if you're a US citizen planning on returning to the US within a few years. If you already have US social security credits, it can be an advantage to add to them if you don't have the necessary 40 quarters for a pension. But if you're planing on remaining overseas, the Medicare stuff will do you no good, even if you qualify for it eventually.

No matter your nationality, however, you should still be subject to German income taxes, however, which makes the local payroll a better deal all around.
Cheers,
Bev


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## BBCWatcher

The U.S. and Germany have a Social Security treaty, so if SSapro20 still hasn't reached 10 years (it's years now, not quarters) of U.S. Social Security contributions (at a minimum level) before retiring, contributions to the German system can be counted in order to qualify.

I might disagree with you on this one, Bev. The social insurance tax rates in Germany are much higher than U.S. rates. Consequently remaining on U.S. payroll, _ceteris paribus_, would be a better option because of the difference in social insurance tax rates.

The comparison is a bit complicated, though, but let me see if I can do it. According to the information I have, the combined U.S. rate (employer plus employee) for 2013 is 15.3% on the first $113,700 of earnings then 2.9% thereafter. Let's suppose annual income is $150,000. Total U.S. contributions (employer and employee) would then be $18,448.80 by my math.

In Germany the rate is 39.7% but with lower thresholds. A $150,000 income equates to about 115,700 euro at current exchange rates. Assuming the "west" threshold, the annual contribution (employer plus employee) would be at least 23,652.84 euro at that income level. (I say "at least" because the German tables are a bit confusing to me, and if I'm reading them incorrectly I'm erring in favor of the lower amount.) Translating that back to dollars it's over $30,600.

In other words, the German social insurance rate only becomes attractive if you're a very high income earner (very high) when the U.S. Medicare tax (which is uncapped) starts to become relevant.

Note that I'm assuming the U.S. employer would kick in medical insurance but otherwise pre-tax income would be exactly the same in both countries.

Anyway, perhaps the original poster could briefly describe what the monthly or annual compensation offers are for both U.S. payroll and German payroll, then it should be pretty easy to figure out which is more attractive. At equal pre-tax salary _usually_ U.S. payroll would be more attractive, but we'll see.


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## Bevdeforges

As I said, it really depends on the OP's situation - we're still not sure of her nationality (or that of her husband) nor her situation.

The goal isn't always to minimize deductions from the paycheck. If you're an EU national, it probably makes more sense to get the pension credits in the German (or any other EU) system, rather than starting out in the US system from scratch.

Another consideration is that of German labor laws. Though they should apply to you whether you're on a "US payroll" or a local one, many US employers don't realize this and figure that you're working by the US rules if they're paying you like someone in the US. (Got to sit in on a German labor court for a day and boy, is this ever a mind blower!)

There are lots of angles to be considered - but it all starts with your nationality, and your intentions.
Cheers,
Bev


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## SSapro20

I am a EU citizen and I worked before also under the German system. I wanna stay here and don't think I can go to USA.Of course I get paid more in Euros at month but I can claim those back at the end of fiscal year.Yes US and Germany got a treaty in place for SS.I wanna get paid in euros since I live in Germany and bills are in euros.


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## Bevdeforges

Unless you're a US citizen, I'd insist on being paid on the local payroll. It will keep your German benefits intact. As I mentioned, US companies don't generally understand that being paid on a US payroll is NOT beneficial to anyone other than a US citizen with plans to return to the US.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> As I mentioned, US companies don't generally understand that being paid on a US payroll is NOT beneficial to anyone other than a US citizen with plans to return to the US.


That's much too strong in my view, Bev. In the sample calculation above the U.S. citizen employee would be $12,000 per year worse off, and even if he/she falls in love with Germany that additional contribution wouldn't even come close to having a positive return compared to the investment alternatives (even bad ones) for that extra pocketable income.

That said, actually the correct answer here is the employee must participate in Germany's system because the Social Security treaty doesn't provide protection in these circumstances. Thus the choice would be between independent contractor status and normal German payroll. At equal compensation levels the latter looks like it would be better.


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## Bevdeforges

But we're not talking about a US citizen employee here. That was my primary point.
Cheers,
Bev


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## BBCWatcher

Yes, agreed. The point I was clarifying is that even those U.S. citizens who aren't planning to return to the U.S. can often do better on U.S. payroll (if that's an option).


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## SSapro20

Hey Bev this is a contracting company from US but working on a US base here for the US Gov.I am opting to be paid under German system in euros and of course all the contributions. I will make about 30 K gross for BBC because she/he asked.If I wilk get paid in dollars I always have to convert $ to euros and so on...


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## Bevdeforges

Unless you have a reason to want to be on a US payroll, I think you'd be better off being paid under the German system. Certainly eliminates the exchange rate risk, if nothing else!
Cheers,
Bev


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## BBCWatcher

If you're able to get a compensation comparison, that'd be good. It doesn't hurt to listen to both offers.


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