us expat tax guide – germany
Do US expats in Germany need to file a US tax return?
Yes, US citizens and green card holders residing in Germany are required to file a US tax return if their income exceeds certain thresholds determined by their filing status. This requirement applies regardless of whether taxes have been paid in Germany, as the US taxes its citizens on their global income.
What are the filing thresholds for 2023-2024?
For the tax year 2024, the income thresholds for filing a US tax return have been adjusted. Single filers must report if their income exceeds US$13,850, while married individuals filing separately need to file if their income is more than US$5. For those married filing jointly, the threshold is at least US$27,700.
It’s important to note that there’s a common misconception among Americans living abroad that paying taxes in their country of residence exempts them from filing US tax returns. However, the IRS requires all US citizens and green card holders to report their worldwide income, regardless of where they live or where their income is earned.
What if I’m married filing separately in Germany?
If a US expat is married to a German spouse and opts for the married filing separately status, they must file a US tax return if their income is just over US$5.
Is it possible for a US citizen in Germany to not pay US taxes?
Yes, it is. However, the distinction between needing to file a US tax return and actually owing US taxes is important for US citizens and green card holders living in Germany. This difference often leads to confusion among expatriates, making professional tax advice crucial to ensure that you are fulfilling your tax obligations.
How do Foreign Tax Credits work for US expats?
When filing US tax returns, Americans in Germany can claim the taxes paid in Germany as a credit on their US tax return. This foreign tax credit mechanism effectively prevents the double taxation of the same income. Since German tax rates are typically higher than those in the US, these credits often eliminate US tax liability and even leave excess credits for future years.
Which is better? Foreign Tax Credits or the Foreign Earned Income Exclusion?
Expatriates must choose between claiming foreign tax credits and the foreign-earned income exclusion, or sometimes both, depending on their specific circumstances. The foreign-earned income exclusion allows qualifying individuals to exclude a portion of their foreign earnings from US taxable income, but it does not apply to self-employment taxes or investment income.
If you’re self-employed in Germany learn more about your US tax filing requirements here.
