# Reporting German Elterngeld on US tax return



## Alltimegreat1

My wife and I both had several months off of work during 2015 for parental leave (Elternzeit). The money we received during those months was provided solely by the German government and was a percentage of our salaries.

Should these payments be reported on our US tax return? If so, as what?


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## Bevdeforges

Take a look at IRS publication 525, particularly page 28, the section on Welfare and Other Public Assistance. If you can characterize your Elternzeit payments as "public assistance" you can simply leave them off your return altogether.
Cheers,
Bev


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## Alltimegreat1

Thanks, Bev. I had a look at the publication. I would argue it is public assistance, but I don't think it's clear-cut. It's possible the IRS hasn't given any thought to how foreign benefits should be reported.


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## Bevdeforges

It's never going to be clear-cut for foreign benefits and other "oddities" like that. US tax law and regulations are written for US type payments and, to a certain extent, was never meant to classify and categorize everything under the sun.

I think, though, that it's safe to assume that Elterngeld or similar public assistance type payments really are outside of the IRS purview, particularly from any country where there is a US tax treaty. Governments tend to shy away from trying to tax each other's payments like that.
Cheers,
Bev


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## BBCWatcher

I found some guidance in relation to "kindergeld" here. According to that source (the U.S. Army), per a memo from the IRS's Chief Counsel kindergeld is not U.S. taxable. Unfortunately I haven't been able to locate the original memo to get more details, but I would assume the Army's newsletter fairly characterizes the memo.

I'm not sure what kindergeld is versus what you received, but hopefully that's useful information. Note that the taxability of that income might not matter anyway. If you're taking the Foreign Earned Income Exclusion, and if you have relatively little (or no) other income, then this particular income you received might slide under your personal exemption and standard deduction. In other words, even if it's U.S. taxable the tax owed might still be zero. If that's how the math works for you, then you really don't have to worry about whether that income is taxable or not.


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## Alltimegreat1

Thanks for sharing that. I had heard about the German Kindergeld ruling. Kindergeld is a child subsidy paid by the government to families every month (for each child until at least age 18). The family's income or financial situation has no bearing on eligibility. The Kindergeld amount is currently €188.
Elterngeld is an income substitute paid in lieu of salary for new parents taking time off work. It is currently 65% of the average monthly salary over the 12 months prior to the child's birth. A total of 14 months are available to be split between mom and dad. Unlike Kindergeld, Elterngeld stops as soon as the new parent returns to work.


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## Bevdeforges

Just be aware that US military personnel overseas may be subject to somewhat different tax rules than ordinary civilians. Make a note in the paperwork you keep regarding your tax returns that you are treating your Elterngeld as "public assistance" and in the (very unlikely) event that the IRS should ask you about this, you explain your position.

The risk of audit for something like this is very, very slim to non-existant.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> Just be aware that US military personnel overseas may be subject to somewhat different tax rules than ordinary civilians.


They are -- FEIE eligibility, notably -- but they would not be in this particular respect.


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## honeybee89

I hired a firm specialized in expat taxes because of Elterngeld, Mutterschutzgeld, etc. for which I could find absolutely no clear rules. What I understood was that they made the call to classify it as foreign earned income because the payments were based on my former earned income and were a Substitute for it. Then they used the FEIE. 

I was originally peeved at having the expense of hiring a specialized firm to handle it, but it was my first child and they were able to use their accounting expertise to actually get me a refund due to having a dependent, which really surprised me. Somehow I hadn't expected that, I only expected to possibly have to pay extra. Something to consider.


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## BBCWatcher

That seems to me like an "aggressive" tax position, and perhaps I'm understating it. On what published text are they basing their position?

By that standard pensions would be foreign earned income. They're assuredly not.


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## honeybee89

They never told me they based it on any specific published text, just that they made that judgement call after consulting with their superiors in the firm. I definitely think it is a very grey area, and as a non-accountant I felt completely in over my head to deal with it by myself.


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## BBCWatcher

Yeah, I'd say so.

Keep in mind it's your tax return and your (excuse the language) ass on the line, not theirs. Unfortunately you cannot transfer liability to the tax preparer. (Wesley Snipes is an example.) So if you're uncomfortable with that approach, then you shouldn't do it.

I recall a couple times over the past several years when I was uncomfortable (to say the least) with a position a tax preparer wanted to take. On one such occasion it turned out the tax preparer had been making a flat out mistake with everybody else's tax returns (in similar situations) and was mightily resistant to admitting that mistake since it could mean a lot of work for them fixing everybody else's tax returns. This was one of the world's top accounting companies, by the way. Eventually they relented. They just flat out got it wrong, and little old me happened to be the one to catch the problem -- and had the first tax return to be filed correctly. (I caught the issue the first year it applied to me.) As it happens, the IRS gets a little bit more revenue with that problem corrected. Sometimes the errors go the other way.

Your tax preparer is not an infallible deity, in other words. So, simply ask them what part(s) of the instructions or tax code they based their position on. If they can't point to specific text that makes sense to you, then they're probably not doing things correctly.


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## Pro.wolf

Alltimegreat1 said:


> My wife and I both had several months off of work during 2015 for parental leave (Elternzeit). The money we received during those months was provided solely by the German government and was a percentage of our salaries.
> 
> Should these payments be reported on our US tax return? If so, as what?


In Canada we receive paternity leave from work and government, for work is a percentage of our salary for a few weeks and after that it is government payment that comes from our employment insurance. I called the IRS last week to ask about it and I was told the government payment is considered 'unemployment' payments and needs to be reported as income (but no income from work but other income).

Not sure if this type,of payment we get in Canada it is similar to what you are referring to.


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## Bevdeforges

Frankly, there is no one "correct" position on items like Elterngeld, unemployment (from a foreign country) and other unusual items.

The tax instructions specifically say that "State and Federal" unemployment benefits are taxable, however in the IRS publication on Taxable and Nontaxable income (Pub 525) it says this:


> Do not include in your income governmental benefit payments from a public welfare fund based upon need, such as payments due to blindness. Payments from a state fund for the victims of crime should not be included in the victims' incomes if they are in the nature of welfare payments. Do not deduct medical expenses that are reimbursed by such a fund. You must include in your income any welfare payments that are compensation for services or that are obtained fraudulently.


Many taxpayers have taken the position that Kindergeld, Elterngeld, national unemployment (from foreign government agencies) and similar payments fall under the "public welfare" or "other public assistance benefits" and have had no problems with the IRS.

It's worth it to know that, were you to be audited, the IRS is under no obligation to respect any advice given out over the phone. The only advice they can be held to is a privately obtained "Revenue Ruling."
Cheers,
Bev


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