Filing 2023 US taxes as an American in Germany: Everything you need to know
Are you an American citizen living in Germany? Melissa Groves is a managing CPA at Bright!Tax, the leading provider of US expat tax services. In this article, Melissa draws on her own knowledge as an expat based in Germany to provide a clear understanding of the US tax requirements for Americans living in Germany in 2023.
Choosing to move to and live in Germany is a decision that is positively life-changing for many Americans. However, there is a drawback to living as an expat: filing US taxes. If you’re surprised to read that filing taxes is obligatory for Americans living abroad, you’re not alone.
The US is one of only two countries in the world that imposes a citizenship-based taxation schema. In layperson’s terms, this means that if you are an American citizen or permanent resident, there is a legal requirement to file taxes with the IRS, in addition to filing your German taxes as a German resident. In rare cases, a taxpayer may be exempt from US filing if they do not meet the filing thresholds, but this is something we will explore later on.
Read on to learn about how to stay compliant with taxes in 2023, as well as money-saving tax tips that every American expat should know about.
2023 taxes in Germany: Requirements and deadlines
The IRS thresholds are in US dollars, so if you earn in euros (or other currencies, or multiple currencies), then you have to convert your income into US dollars to check whether you have to file (and for reporting on your US tax return).
The minimum thresholds for filing in 2023 (income received in 2022) are:
|Status||Threshold (USD)||Threshold (EUR)*|
|Single, under 65||12.950||12.315|
|Single, 65 or older||14.700||13.980|
|Married filing jointly, both spouses under 65||25.900||24.631|
|Married filing jointly, one spouse under 65 and one 65 or older||27.300||25.962|
|Married filing jointly, both aged 65 or older||28.700||27.294|
|Married filing separately||5||5|
|Filing as self-employed||400||380|
|Filing as head of household, under age 65||19.400||18.449|
|Filing as head of household, aged 65 or older||21.150||20.114|
|Filing as a qualifying surviving spouse with a dependent child, under 65||25.900||24.631|
|Filing as a qualifying surviving spouse with a dependent child, aged 65 or over||27.300||25.962|
*Please note that the amounts in EUR are based off of the official IRS currency exchange rates.
Americans living abroad benefit from an automatic two-month extension, meaning that expats have until June 15, 2023, to complete their US tax returns and file them with the IRS. In some cases, it may not be practical or even feasible to meet the deadline even with the extension, in which case taxpayers have the right to request an additional filing extension until October 16, 2023 (as October 15 falls on a Sunday this year).
Standard reporting requirements all American expats should know
Here are some standard reporting requirements you should know about:
Foreign Bank Account Report (FBAR)
If you had a total of more than 10.000 US dollars in financial accounts registered outside the US (including your bank, pension, and investment accounts) at any time in 2022, you’ll also have to file with the Financial Crimes Enforcement Network (FinCEN) to report them.
Foreign Account Compliance Act (FATCA)
FATCA came into effect on July 1, 2014, and has two aspects that affect expats:
- It requires individuals with financial assets abroad to report them when they file their federal tax return.
- It requires foreign financial institutions, including banks and investment firms, to report their US account holders, allowing the IRS to monitor expats’ foreign registered accounts.
FATCA is often the source of headaches for Americans who run into difficulties opening foreign bank accounts; often, foreign financial institutions decide to reject an American’s application to open a bank account because it’s easier than dealing with the red tape associated with their reporting obligations for American clients.
Tactics to reduce or eliminate your US tax bill
Did you know that Americans are protected from double taxation by the US-Germany tax treaty? Although Americans living in Germany are required to file a US tax return, key provisions of the treaty protect a sizeable amount of expat financial assets.
Chief among these is the fact that Americans are not subjected to double-taxation on their income. As an American living in Germany, you can claim either the Foreign Tax Credit or the Foreign Earned Income Exclusion to reduce your US tax liability - often to zero.
Foreign Tax Credit (FTC)
The FTC (IRS Form 1116) is a very straightforward credit that allows Americans who pay foreign income taxes to reduce their overall US tax liability by claiming a “credit” for every dollar paid in foreign taxes. For Americans living in Germany, where taxes are higher than in the US, this may be a good option for you to reduce your US tax liability to zero. Although the FTC is non-refundable, you can hold excess credits and apply them to future US tax bills for up to 10 years.
Foreign Earned Income Exclusion (FEIE)
The FEIE is an IRS exemption that American expats can claim when they file their US tax return from abroad. The precise amount increases a little bit each year to account for inflation, and the FEIE threshold for the 2022 tax year is 112.000 US dollars.
Additionally, the tax treaty stipulates that any income from interest, dividends, and royalties is taxed in the country where you are a resident, so there are additional provisions American residents in Germany may use to protect themselves from double taxation.
Child Tax Credit
The Child Tax Credit allows all American parents, including expats, to claim a tax credit of up to 2.000 US dollars for each of their qualifying children or dependents (as of tax year 2022). Your child must be a US citizen with a Social Security Number in order to qualify.
Self-employment and a note on state taxes
Americans living in Germany who are self-employed are also liable to pay US self-employment taxes. However, there is a double taxation treaty, called a Totalization Agreement, in place that exempts you from paying both US and German social security taxes.
Americans living abroad need to carefully check their former home state's rules for filing, especially those who last resided in California, New Mexico, South Carolina, or Virginia.
US taxes are complicated - but expat tax specialists make filing easy
If you arrived here in a sweat because you just learned of your filing obligations and are behind on multiple tax filings, there is hope! An IRS amnesty program called the Streamlined Filing Compliance Procedures was created specifically for people in this situation, and lets taxpayers catch up without facing IRS penalties. You can even retroactively claim US exclusions and credits via this procedure! .
The only caveat is that the program must be used before the IRS communicates with you to request any late tax returns. For this reason, entrusting your US tax filing to CPAs who specialize in US expat taxes is highly recommended.
Looking to get compliant on your US taxes? The leading expat tax services provider Bright!Tax may be just the ticket to help you get peace of mind. They will consider your whole situation and ensure that you remain compliant, while filing in your best interests to make the most of your money.