My wife has landed a position in Germany. I work outside of education for a U.S. company, doing work throughout Europe.
How will taxes be done with my wife? My understanding is the U.S. and Germany have a tax treaty agreement, which prevents taxation from both countries. Can someone who has lived in Germany as a teacher explain?
Thanks in advance!
Germany tax questions
Response
Yes there are tax treaties, but they werent really intended for ITs. Within the scope of education they they were intended for visiting scholars and professors and guest teachers. A professor is does an exchange with a local Uni, or a researcher contributing to a project at a Uni research center. They werent intended to be a tax break for an IT whos hired by a local/regional IS/DS as a regular employee. They also have extensive provisos, addendum, and exclusions. As a result what happens is your IS will either A) Retain the tax portion and determine your right/access to it at the time you depart. B) Pay the taxes as usual and then offer a degree of assistance in reclaiming it if you quality at some later time. The objective is the IS doesnt want to pay stuck with a tax liability on your behalf, when you have departed the region.
What you refer to as double taxation still requires that you remit tax to to some entity, it doesnt prohibit single taxation.
What you refer to as double taxation still requires that you remit tax to to some entity, it doesnt prohibit single taxation.
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Thames Pirate
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Re: Germany tax questions
Once again PsyGuy is giving information on something he doesn't understand.
I am assuming you are both US citizens and do not hold EU passports.
Your wife will pay taxes normally in Germany--withheld, just as they are in the States. The school will work with her to determine her tax class. She does have to file in the US, but the first 100k or so is exempt (I forget the exact amount, but it is more than teachers make), so there would not be any taxes paid in the US. This is the exclusion. The other option is the credit--you get credit for taxes paid abroad, and since German taxes are higher, you owe nothing in the US. Depending on your job and income, this might be the better option for you.
The bigger question will be related to your work. If you are still working for the US company, you will need to work with your company to determine if you are going to pay US or German taxes. The school should also be able to advise you on this. You might be better off filing separately, though in that case you might need a different residency permit. It is likely easiest for you to pay taxes in Germany (and do the foreign tax credit). If your company can set you up in the same way (help you determine tax class/withholdings from a paycheck) that is ideal. Otherwise, you have to pay them yourself, and that is where it gets messy and you need a tax guy (who files for you).
Simply put, if you were either both working for a company (such as the school) or if your wife were a single with no dependent a, it's tax class five(I think). That means you don't have to file at all, and the company simply withholds. It is assumed correct until you are audited, which never really happens. If you are listed as a dependent, the tax class changes. She pays less, but she has to file. When you have to file, you need a tax guy.
Once you file, you have to file every year even if your tax class changes. Your tax advisor will help you with this, and the school should be able to provide recommended tax advisors who speak English and are familiar with the complications of foreign taxes.
There is a rule specific to education in which a teacher--yes, even at an international school, despite what PsyGuy says--can get all their tax money back if they are in Germany for less than two years. However, if you EVER come back to Germany, you would be liable for that amount. Many schools withhold the tax separately, keep it for you, and if you leave, they pay it out to you. If zou stay, they pay it out to the government as your back taxes (no cost to you or your credit rating). Your school should be able to advise on this. A school-recommended tax guy can as wel, but the average small-town tax guy probably can't. PsyGuy will tell you the rule doesn't apply to IT, but it definitely does. Frankfurt IS does the withholding for you, and I have known ITs who got this money back. I do not know, however, how your tax situation complicates this matter for her. The school should be able to advise you on that.
A fair bit of your tax burden is retirement benefits. If you are in Germany for less than 5 years, you can reclaim all of this once you have been gone from Germany for 2years. After 5 years you are vested and can claim your pension when you turn 65 (amount varies based on what and how long you paid in). Obviously if you live and work in other EU countries or hold EU citizenship, these rules change.
The short answer is no, you do not have to pay taxes in both countries.
I am assuming you are both US citizens and do not hold EU passports.
Your wife will pay taxes normally in Germany--withheld, just as they are in the States. The school will work with her to determine her tax class. She does have to file in the US, but the first 100k or so is exempt (I forget the exact amount, but it is more than teachers make), so there would not be any taxes paid in the US. This is the exclusion. The other option is the credit--you get credit for taxes paid abroad, and since German taxes are higher, you owe nothing in the US. Depending on your job and income, this might be the better option for you.
The bigger question will be related to your work. If you are still working for the US company, you will need to work with your company to determine if you are going to pay US or German taxes. The school should also be able to advise you on this. You might be better off filing separately, though in that case you might need a different residency permit. It is likely easiest for you to pay taxes in Germany (and do the foreign tax credit). If your company can set you up in the same way (help you determine tax class/withholdings from a paycheck) that is ideal. Otherwise, you have to pay them yourself, and that is where it gets messy and you need a tax guy (who files for you).
Simply put, if you were either both working for a company (such as the school) or if your wife were a single with no dependent a, it's tax class five(I think). That means you don't have to file at all, and the company simply withholds. It is assumed correct until you are audited, which never really happens. If you are listed as a dependent, the tax class changes. She pays less, but she has to file. When you have to file, you need a tax guy.
Once you file, you have to file every year even if your tax class changes. Your tax advisor will help you with this, and the school should be able to provide recommended tax advisors who speak English and are familiar with the complications of foreign taxes.
There is a rule specific to education in which a teacher--yes, even at an international school, despite what PsyGuy says--can get all their tax money back if they are in Germany for less than two years. However, if you EVER come back to Germany, you would be liable for that amount. Many schools withhold the tax separately, keep it for you, and if you leave, they pay it out to you. If zou stay, they pay it out to the government as your back taxes (no cost to you or your credit rating). Your school should be able to advise on this. A school-recommended tax guy can as wel, but the average small-town tax guy probably can't. PsyGuy will tell you the rule doesn't apply to IT, but it definitely does. Frankfurt IS does the withholding for you, and I have known ITs who got this money back. I do not know, however, how your tax situation complicates this matter for her. The school should be able to advise you on that.
A fair bit of your tax burden is retirement benefits. If you are in Germany for less than 5 years, you can reclaim all of this once you have been gone from Germany for 2years. After 5 years you are vested and can claim your pension when you turn 65 (amount varies based on what and how long you paid in). Obviously if you live and work in other EU countries or hold EU citizenship, these rules change.
The short answer is no, you do not have to pay taxes in both countries.
Reply
Once again @Thames Pirate doesnt understand and claims to be right because @Thames Pirate claims to be right.
There is a US Foreign tax exclusion, foreign tax deduction and a foreign tax credit, they have different criteria. The income limit is USD$100,800. None of these have anything to do with the Tax treaty.
What you will want to use if the Exclusion since it doesnt matter where you earn the income from but where you reside when youve earned it based on your contribution of income and filing jointly. Depending on your income you may not be better off paying German taxes it depends what bracket it puts you in. You may benefit from a tax advisor but its something you can certainly handle yourself.
Again the Tax treaty really doesnt apply to ITs, sometimes it works sometimes it doesnt.
Of course you dont have to pay Taxes twice, as provided in my previous post.
There is a US Foreign tax exclusion, foreign tax deduction and a foreign tax credit, they have different criteria. The income limit is USD$100,800. None of these have anything to do with the Tax treaty.
What you will want to use if the Exclusion since it doesnt matter where you earn the income from but where you reside when youve earned it based on your contribution of income and filing jointly. Depending on your income you may not be better off paying German taxes it depends what bracket it puts you in. You may benefit from a tax advisor but its something you can certainly handle yourself.
Again the Tax treaty really doesnt apply to ITs, sometimes it works sometimes it doesnt.
Of course you dont have to pay Taxes twice, as provided in my previous post.
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Thames Pirate
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Re: Germany tax questions
You probably don't need a tax advisor in the US. I meant in Germany. And yes, the two year rule does apply to IT, and it is part of the overall tax treaty, which does apply as it is what prevents double taxation.
Reply
@Thames Pirate
You wouldnt likely need an advisor in Germany, unless the corporate work the non teaching spouse is performing is based on consulting or other services being provided by his own corporate or business entity.
No, the tax treaty 2 year allowance generally does not apply to ITs. Its the IRS tax code for foreign tax deductions, credits, and exclusions that protects against double taxation, and you can use and apply them for much longer than two years.
You wouldnt likely need an advisor in Germany, unless the corporate work the non teaching spouse is performing is based on consulting or other services being provided by his own corporate or business entity.
No, the tax treaty 2 year allowance generally does not apply to ITs. Its the IRS tax code for foreign tax deductions, credits, and exclusions that protects against double taxation, and you can use and apply them for much longer than two years.
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Thames Pirate
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Re: Germany tax questions
The tax rule for ITs does apply. Again, we know people who have done it, and FIS withholds for just this contingency.
You generally need a tax advisor in Germany if you aren't tax class five.
You generally need a tax advisor in Germany if you aren't tax class five.
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Thames Pirate
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Re: Germany tax questions
Oh, you have taught in Germany? You are familiar with the different tax classes?
You should try reading the treaty.
Also, FIS would not be stuck with a tax liability. The teacher would just have the added burden of claiming it back, which is a huge hassle. So they withhold, don't pay the tax, and when the tax is due because the teacher stayed, they pay the lump sum they had already withheld. If the teacher leaves, they pay the lump sum to the teacher. This is how it was explained to me by the HR director at FIS.
PsyGuy's initial post was based on incomplete information he gleaned from another thread on taxes in Germany. He wanted to disagree with me there because that is what he does, and his post here was meant to preempt me so I would argue with him. I provided the information you need to get started. The HR department at the school should be able to help beyond that in determining tax class based on your role, etc.
Hope it was helpful!
You should try reading the treaty.
Also, FIS would not be stuck with a tax liability. The teacher would just have the added burden of claiming it back, which is a huge hassle. So they withhold, don't pay the tax, and when the tax is due because the teacher stayed, they pay the lump sum they had already withheld. If the teacher leaves, they pay the lump sum to the teacher. This is how it was explained to me by the HR director at FIS.
PsyGuy's initial post was based on incomplete information he gleaned from another thread on taxes in Germany. He wanted to disagree with me there because that is what he does, and his post here was meant to preempt me so I would argue with him. I provided the information you need to get started. The HR department at the school should be able to help beyond that in determining tax class based on your role, etc.
Hope it was helpful!
Reply
@Thames Pirate
I dont need to try, I have read the treaty. Yes FIS would be stuck with the tax liability for not remitting it. Your HR director gave you a creative rational.
I disagree with you when you are wrong, and I expanded my response when your post necessitated, which I typically consider prudent when you are wrong.
I dont need to try, I have read the treaty. Yes FIS would be stuck with the tax liability for not remitting it. Your HR director gave you a creative rational.
I disagree with you when you are wrong, and I expanded my response when your post necessitated, which I typically consider prudent when you are wrong.
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Thames Pirate
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Re: Germany tax questions
Simple enough--believe PsyGuy and miss a really great tax option. Listen to someone who has actual experience and know your options before deciding.
The school should withhold the taxes based on tax class either way. Whether they pay them directly to the government and make you go through the hassle of reclaiming the money or hold them for two years and make it easy for you is a school by school decision. There is no extra liability either way as they have already withheld the money from your paycheck. Some schools don't withhold it, but if the teacher decides to stay, the TEACHER is liable for those back taxes in year 3. The schools have found that withholding means this back tax is not a determinant in decisions to stay or go, which is why they do it. Talk to the school about it.
The school should withhold the taxes based on tax class either way. Whether they pay them directly to the government and make you go through the hassle of reclaiming the money or hold them for two years and make it easy for you is a school by school decision. There is no extra liability either way as they have already withheld the money from your paycheck. Some schools don't withhold it, but if the teacher decides to stay, the TEACHER is liable for those back taxes in year 3. The schools have found that withholding means this back tax is not a determinant in decisions to stay or go, which is why they do it. Talk to the school about it.
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Thames Pirate
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Re: Germany tax questions
We aren't talking about regions. We are talking about Germany.
I don't claim to know it all, and I made clear what I do and don't know from the start. I do know ITs are eligible for this benefit and how some schools handle it.
I don't claim to know it all, and I made clear what I do and don't know from the start. I do know ITs are eligible for this benefit and how some schools handle it.
Re: Germany tax questions
Let me ask the question this way....
Say the school was paying 50,000 euros a year. What would be a range of take home pay?
My company is going to handle my taxes, and at the end of the day, I will get the same amount deposited in my bank account as if I was in the U.S. We have one child who will be with us.
Again, thanks for the information. We appreciate it.
Say the school was paying 50,000 euros a year. What would be a range of take home pay?
My company is going to handle my taxes, and at the end of the day, I will get the same amount deposited in my bank account as if I was in the U.S. We have one child who will be with us.
Again, thanks for the information. We appreciate it.