FAQ - American Expats in Germany

The U.S.–Germany tax treaty helps determine which country has the primary right to tax your German pension and social security income and is designed to prevent double taxation.

General rule:
These benefits are typically taxed in the country where you live when you receive them.

‍How it works in practice

• If you live in Germany:
  Germany generally taxes your German pension and social security benefits.
  As a U.S. taxpayer, you must still report this income on your U.S. tax return, but you can often claim a Foreign Tax Credit (FTC) for the German taxes paid.
• If you live in the United States:
  The U.S. usually taxes this income similarly to U.S. Social Security benefits (often partially taxable depending on your total income).
  In most cases, Germany does not tax these payments again when you are U.S.-resident.

Important point to note

German pension and social security benefits are not considered “earned income” for U.S. tax purposes. This means:

• They do not qualify for the Foreign Earned Income Exclusion (FEIE)
• Instead, any double taxation relief is generally achieved through the Foreign Tax Credit (FTC) mechanism

This distinction is important, as many taxpayers assume all foreign income can be excluded — which is not the case for pension or social security-type income.

Key takeaway

Even if the treaty assigns taxing rights to one country, you must still report this income annually on your U.S. tax return. Proper use of treaty provisions and foreign tax credits ensures you are not taxed twice while remaining compliant.

Yes, usually you do if you are a German tax resident. Under the US–Germany tax treaty, dividends, interest and capital gains from investments are taxed where you are resident, which in this case is Germany.  The US can still withhold tax on US dividends, but the main right to tax your portfolio income sits with Germany once you live there.

In Germany, these investment incomes are generally taxed at 25% plus solidarity surcharge, for an effective rate of about 26.4%, after a 1,000 EUR annual allowance.  US withholding tax on dividends (typically 15%) can usually be credited against your German tax bill on the same dividend, so you do not pay tax twice on that income.

A few details matter for US expats in Germany:

• German tax law does not distinguish between short‑term and long‑term capital gains on shares. All gains on shares bought after 31 December 2008 are taxable; only very old positions held since before 2009 can still be fully tax‑free.

• Germany taxes the gain as “proceeds minus acquisition costs”, so you need cost basis information for your US trades in euros, not just in dollars.

• Some US tax‑favored plans (for example certain 401(k) and retirement schemes listed in the treaty) may be treated differently. As long as the assets stay inside a qualifying plan, Germany can in some cases ignore the dividends, interest and capital gains until you actually take money out.

Because the treaty rules and product types are technical, it is easy to make mistakes if you only copy numbers from your US 1099 into a German tax return.  In practice, many US expats in Germany use a local German tax advisor together with a US expat tax specialist like Taxbrella, so the German treatment of their US brokerage and retirement accounts lines up with the US return and avoids double taxation issues.

Yes, in many cases you do. If you are a US citizen living in Germany and you are considered a tax resident there, you generally need to file a German tax return, even if you also file a US tax return each year. For many Americans in Germany, this is one of the first big tax surprises, because filing in the US does not replace your German filing obligations.

You are usually treated as tax resident in Germany if you have a place of residence there or if you spend more than 183 days in Germany during the year. A place of residence can be broader than many people expect. It can mean a flat or house that you rent or own, but it can also mean a place you can access at any time, for example if you have your own key and the arrangement is not just a short holiday visit.

Once you are tax resident in Germany, the basic rule is that Germany taxes your worldwide income. That can include:

• ‍Salary from a German employer
• Salary earned abroad after you became German tax resident
• US rental income
• Dividends, interest and capital gains from US accounts
• Other foreign income, depending on the facts

That does not always mean Germany gets final taxing rights over every type of income. The US‑Germany tax treaty can change which country taxes certain income first, and it can also help prevent double taxation through exemptions or foreign tax credits. But even when income is not fully taxed in Germany, it may still need to be reported on your German tax return.

This is where many Americans in Germany get caught out. Some assume they do not need to file because their employer already withholds German wage tax from payroll. In some simple cases, for example if you worked the full year for one employer, had no other income, and were in the standard tax class, there may be no filing obligation. But many US expats do not fit that simple pattern, especially if they have US investments, rental income, a mid‑year move, freelance income, or a spouse with a different tax position.

A mid‑year move can be especially tricky. If you move to Germany partway through the year, Germany may tax only the income you earned after the move, but it can still use your earlier worldwide income to determine the tax rate on your German income. This is often called the progression rule, and it can lead to a higher German tax bill than many new arrivals expect.

Key Takeaways

The key takeaway is simple: if you are an American living in Germany, do not assume your German employer or your US tax preparer has fully covered your German filing duties. If you are tax resident in Germany, there is a strong chance you need a German tax return, and the return may also need to include information about your US income and assets.

A few common signs that you may need to file a German tax return:

• You moved to Germany during the year
• You have a rental property in the US
• You have a US brokerage account
• You freelance or run a side business
• You are married and your spouse’s situation affects your filing
• You received mail or notices from the German tax office

For Americans abroad, the safest approach is usually to coordinate both sides properly: a German tax advisor for the German return and a US expat tax specialist for the US return. That helps you stay compliant in both countries and reduces the risk of missed reporting, double taxation issues or avoidable penalties.

Main ways tax residency starts

You are typically tax resident in Germany if:

- You rent or own a flat or house in Germany.
- You have a room you can access at any time, for example because you have your own key.
- You spend more than 183 days in Germany in a year.

What counts as a place of residence

A place of residence can be broader than many Americans expect.  It can be an apartment in your own name, a house you own, or even a room in someone else’s home, as long as you can use it whenever you want and you are not just there as a short-term guest.

If you are registered at that address and can come and go freely, the German tax office may see you as tax resident even earlier than you expected.  This catches some US expats off guard because they focus only on the 183-day rule and forget that housing access can matter on its own.

How the 183-day rule works

The 183-day rule is based on what Germany calls your habitual abode.  If you spend more than 183 days in Germany during the year, you are usually treated as tax resident there, even if the lease, bills or property title are not all in your name.

This means you can become tax resident through time spent in Germany even if your housing setup looks informal.

Short visits versus moving to Germany

Short visits alone usually do not make you tax resident.  If you are visiting family for a holiday, staying briefly, and there is no real plan to settle in Germany, that alone is normally not enough.

But things can become less clear if a short stay turns into something longer.  If you arrive thinking you will stay a week or a month, then decide to remain in Germany, the date you effectively moved can become very important later, especially if you already had a key and a place you could access at any time.

Why the exact date matters

Once you are tax resident in Germany, the basic rule is that Germany can tax your worldwide income, unless the US-Germany tax treaty gives taxing rights to another country or provides relief from double taxation.  That is why the exact start date of German tax residency matters so much for Americans living in Germany. It can affect when Germany starts looking at your salary, investments, rental income and other foreign income.

Why this matters for US expats

For Americans in Germany, tax residency is one of the most important issues to get right early.  If you split time between countries, stay with friends or family, or move gradually rather than all at once, it is easy to become German tax resident without realizing it.

In those borderline cases, it often makes sense to have a German tax advisor review your housing, travel days and move timeline so you know exactly when your German filing obligations began.

When non-residents may still need to file

German tax residency is not the only thing that matters.  Even if you live abroad and are not treated as a German tax resident, Germany can still tax certain income that arises from German sources.

This is especially important for Americans and other expats who assume that living outside Germany automatically means they have no German filing requirement.  In many cases, that assumption is wrong.

Common examples of German-source income

Some of the most common examples of German-source income for non-residents include:

- Rental income from property located in Germany.

- Salary linked to work physically performed in Germany.

- Income connected to a German employer where part of the work is actually carried out inside Germany.

If you own a property in Germany and rent it out while living abroad, Germany can tax that rental income and may require a German tax return reporting that income.

Working in Germany for a German employer

Employment income can also create a German tax filing obligation, even if you live in another country most of the time.  In the webinar example, the speaker explained that if you live abroad but work for a German company and perform some of that work in Germany, Germany can tax the portion of salary linked to the days worked physically in Germany.

That means the location where the work is actually performed matters.  It is not only about where your employer is based or where your salary is paid.

Even one day can matter

This is the part many people miss: the filing obligation can start surprisingly early.  According to the webinar example, if you live abroad, work remotely for a German company, and are in Germany for just one working day, Germany may tax the salary portion for that one day and require a German tax return for it.

That does not mean every one-day visit automatically becomes a major tax case, but it does show how quickly non-resident German tax exposure can arise.

Why this catches people off guard

Many cross-border workers think only full relocation creates German tax issues.  In reality, a property in Germany, a few workdays in Germany, or other German-connected income can be enough to trigger filing obligations even when you remain non-resident.

This is particularly relevant for:

- Americans living elsewhere in Europe

- Remote workers employed by German companies

- People with German rental property

- Employees who travel into Germany for meetings, projects or short assignments

Why professional advice often helps

Once German-source income is involved, the next question is usually not just whether Germany can tax the income, but how much of it Germany can tax and whether a tax treaty changes the result.  In practice, that often requires looking at the type of income, where the work was physically done, and whether any relief is available in your country of residence.

For that reason, non-residents with German-source income often need a German tax advisor even if they do not live in Germany full time.

If you are a US expat and you are considered tax resident in Germany, the default rule is that Germany taxes your worldwide income, not just your German salary.  That means the German tax office can look at income from Germany and from abroad once you become a German tax resident.

What “worldwide income” means for US expats

As a German tax resident, worldwide income typically includes:

- German salary from a German employer  

- US salary earned after you have moved to Germany  

- US rental income from property in the United States  

- US dividends, interest and capital gains from brokerage and bank accounts  

This surprises many Americans in Germany, especially those who still have US investments or rental property and assumed these would only be taxed in the US.

How the US–Germany tax treaty fits in

The fact that Germany taxes worldwide income does not automatically mean every euro is taxed twice.  The US–Germany income tax treaty allocates taxing rights between the two countries for different types of income (for example, employment income, dividends, interest, capital gains, pensions and rental income).

Depending on the income type, the treaty can:

- Give primary taxing rights to Germany or to the US  

- Require the other country to exempt that income from tax, or  

- Allow the other country to tax it but then grant a foreign tax credit for tax already paid abroad  

In practice, this is how double taxation is usually avoided for US expats in Germany.  However, it often still means that foreign income, such as US rental profits or dividends, must be disclosed on the German tax return even if Germany ultimately exempts it or only uses it to calculate your tax rate.

Why reporting matters even if tax is reduced

Even when the treaty says that a certain income (for example, US rental income) is taxable mainly in the US, Germany may still require you to report it so that it can be taken into account under the progression rule when calculating your German tax rate.  This can increase the rate applied to your German‑taxable income, even if the foreign income itself is not taxed again in Germany.

Because the interaction between worldwide taxation, the treaty, and foreign tax credits can be quite technical, many US expats in Germany work with both a German tax advisor and a US expat tax specialist to coordinate the two returns and avoid gaps or unintended double taxation.

When you move to Germany partway through the year and become a tax resident, Germany taxes the income you earn after your move. It does not tax the salary you earned before you became a resident. Germany may still look at your full worldwide income for the whole year to set the tax rate on your German income. This rule is called the progression clause.

Income before and after your move

In a mid-year move, Germany usually splits your income into two parts:

• Income earned before you moved to Germany, which Germany usually does not tax directly.
• Income earned after you moved to Germany, which Germany taxes once you are a resident.

So if you earned a US salary before moving and a German salary after, Germany taxes the income after your move. Your income before the move still matters because it helps set the rate.

How the progression clause works

Germany uses a progressive tax system, so your rate goes up as your income goes up. In the year you move, Germany can use your total worldwide income for the whole year to find your tax bracket. It then applies that rate only to the income that is taxable in Germany after your move.

A small amount of German-taxable income can still face a high rate if you earned a lot earlier in the year outside Germany.

Example

Picture Sarah, who moved to Germany on October 1.

• She earned 85,000 EUR in the US before moving.
• After moving to Germany, she earned 18,000 EUR from her new German job before year-end.

Germany would tax the 18,000 EUR she earned after the move, not the 85,000 EUR she earned before. But Germany may still use Sarah's full-year worldwide income of 103,000 EUR to set her German tax rate under the progression clause.

So her 18,000 EUR of German-taxable income may face a higher rate than someone who earned only 18,000 EUR all year. The main point is simple. Your pre-move US salary may not be taxed in Germany, but it can raise the rate on your post-move German income.

Why this surprises US expats

Many Americans think a late move and a small German income mean a small German tax bill. The progression clause can change that. Germany uses your full-year income to set the rate.

Many US expats in Germany want to know one thing. How does Germany treat US retirement accounts like 401(k)s, traditional IRAs, and similar plans? Germany taxes the worldwide income of German tax residents. But the US–Germany tax treaty gives special treatment to certain US tax-favored retirement plans.

Tax-advantaged schemes under the treaty

Germany often treats some US retirement plans as tax-advantaged schemes under the tax treaty. Your plan may sit on the treaty's list of qualifying pension or retirement schemes. If so, dividends, interest, and capital gains that stay inside the plan may avoid German tax for now. This holds true while the money stays in the account.

This matters a lot for long-term savers. It means the German tax office may not tax the yearly growth inside a recognized US retirement plan. That happens even though Germany would normally tax foreign investment income.

Not every US plan qualifies

Not every US account with a US tax benefit gets the same treatment in Germany. The treaty uses a defined list and set criteria. So these details matter:

• The exact type of plan you hold (for example, employer 401(k), 403(b), certain IRAs)
• Whether the plan meets the treaty's conditions for a qualifying pension or retirement scheme
• Whether the contributions and benefits look truly retirement-focused from a German view

A plan that does not qualify as a tax-advantaged scheme gets different treatment. Germany may treat the account like an ordinary investment account. That means it could tax dividends, interest, and capital gains each year, even if you take no money out.[1]

Why plan-specific advice is essential

The rules run deep, and the treaty points to set types of schemes. So the answer for a US 401(k) can differ from the answer for a Roth IRA, a SEP-IRA, or another employer plan. Germany's treatment of future payouts (when you actually take money out) can also differ from its treatment of the yearly growth inside the account.

For that reason, US expats in Germany usually need a German tax advisor to:

• Pin down exactly which US plan(s) they hold
• Check whether the plan counts as a tax-advantaged scheme under the treaty
• Confirm whether dividends, interest, and capital gains inside the plan skip current German tax
• Explain how payouts will be taxed when you take them later[1]

Practical takeaway for US expats in Germany

You hold US retirement accounts and live in Germany as a German tax resident. Do not assume all your US plans get the same shelter from German tax that they get from US tax. The safest move is simple. Have a German tax professional check your 401(k), IRA, and other US plans against the treaty rules. Then you will know which accounts are protected and which may create taxable income each year in Germany.