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German Postdoc in USA - Tax Treaty Status

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German Postdoc in USA - Tax Treaty Status

Postby Tim K » Wed Aug 22, 2018 10:34 pm

I am a postdoc from Germany working at a public research organization (NASA) in California. I am confident that my work meets the criteria ("for the public good") for the tax treaty between Germany and USA to apply. I was wondering if there are other German postdocs in this forum who have been in this situation because the following point is not entirely clear to me:

The tax treaty states that I am exempt from paying income tax. Does that mean no income tax has to be paid or does this exemption only applies to federal but not state income tax?

Thanks for any help!
Tim K
 
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Re: German Postdoc in USA - Tax Treaty Status

Postby PG » Mon Aug 27, 2018 3:02 am

This is outside my expertise so please dont take my answer as something definitely correct. I find it unlikely that the agreement would say that you dont have to pay income tax. Instead most of these agreements states were you should pay your taxes, using Germany as an example the agreement may state that you are exempt from paying income tax in the US which usually means that you will have to pay in Germany instead.

My advice would be to aontact either a company in the US that works with US tax advice or possibly the German tax authorities and ask them the question. If you get this wrong it may end up very expensive with the worst scenario would be that you have to pay taxes in two countries.
I actually know US scientist who may lose money due to getting an extra income in the US while living abroad and as it sounds at the moment he probably has to pay taxes in two countries which makes the total tax exceed the income.
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Re: German Postdoc in USA - Tax Treaty Status

Postby D.X. » Mon Aug 27, 2018 7:47 am

Many years ago and I don't know if this has changed but you were tax-exempt up to a certain amount. Your local foreign student HR/office in the US should be able to advise you.

You may need to declare you income as there will be a W2 in your name sent to the IRS. However, you may find you are infact tax-exempt as a resident of the US. That you need to confirm. But you still need to declare.

The general rule is you pay the taxes of the resident country, i.e. where you reside. You will need to see if you are obliged to pay any German taxes as a non-domiciled/non-resident citizen which I doubt. You may still need to declare. You should not be "double" taxed as treaties are in place to avoid that.

Now to PG...for your friend..here is the exception:

Only one country that i am aware of in the world will tax you on citizenship, irrespetive of your domicile and resident and that' the US and this is why many line up to dump US citizenship if they decide to never move back.

You can be a US citizen, live in Germany and you will have to declare your world-wide income to the US IRS...AND pay taxes on it, irrepsective if its if your paycheck comes from a non-US associated company or even its its from the German government. All foreign banks will send your bank-account details to the US, this "law" is called FACTA (via W9, and then a FBAR is then submitted by the US citizen..this is done every year). And you can't claim negligence, its the law is on the back page of every US passport.

In that situation, that's where the US tax treaties kick in for what people call double taxation, which its not. What it is, is that for a US citizen, living in a foreign land, you pay what's owed to the US pending local tax situatuion. If say in the US your tax rate is 35 percent and you live in France and your tax rate is say 50 percent, you pay nothing. If you live in Switzerland, and your tax rate is 20 percent, and you make above a certainl level you owe he remaining 15 percent. OR up to a certain income depending on tax local country level you can op to pay a percent of your total income or loca tax, which ever is higher for the US..yup..can't get away. So its not double-taxation per se, yes you may pay taxes to 2 countires but you're paying basically what the US wants i.e. the differential to the US if there is one......AFTER you've paid your local resident taxes, but never above what the US wants. So there should not be any "losing" of income. Just losing a bigger chunk where applicable. Does it make sense? You friend should not be in that situation, he or she is doing something wrong.

I do this every year....aot of paper work. I'm in the situation where I pay US level taxes - its about an extra 10 percent ontop of what I pay locally...i'm OK with it. It is what it is until i take a decision on if I go back to the US or not...that decision is in my 10 year plan.
D.X.
 
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Re: German Postdoc in USA - Tax Treaty Status

Postby Tim K » Mon Aug 27, 2018 12:00 pm

Thanks for the replies D.X. and PG! There are some useful pointers in there.
Tim K
 
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Re: German Postdoc in USA - Tax Treaty Status

Postby PG » Tue Aug 28, 2018 5:54 am

I am sorry to hijack your thread. In the case I was talking about the tax authorities of the two countries doesnt agree about the interpretation of the tax agreement. The person has a dual citizenship and lives full time in another country than the US since many years. This second country insists on that she should pay full tax there and after that pay any US taxes that remains after deducting the tax already payed.
US tax authorities are saying pretty much the same thing ie first pay full US tax and then if there is anything left pay the taxes in the country she lives in.
As long as both authorities insists of being payed first and both are willing to take their payment directly from her she is limited in what she can do. There are various legal firms involved both in the US and Europe all solutions that have been suggested are bad for various reasons that is outside the scope of discussions on this forum.
PG
 
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Re: German Postdoc in USA - Tax Treaty Status

Postby D.X. » Tue Aug 28, 2018 12:13 pm

Hm..could come down to either residency time (number of days per year in country) or last state of residence, i.e. California still wants their share. This is one of my areas of expertise due to personal situation.

But agreed, off-scope for this forum other than something US citizen and permanant resident card holders (green card) should consider when looking at ex-US jobs/opportunites.

Best,

DX
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