I moved to Germany mid‑year. How will Germany tax my US salary and German salary?

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.