Americans who move to Germany for a job transfer, a marriage, or an EU-based career quickly discover that two governments are now watching their income: the Finanzamt in Germany and the IRS back home. US expat taxes in Germany are not optional and they are not automatic. Because Germany taxes its residents on worldwide income and the United States taxes its citizens and green card holders no matter where they live, an American living in Germany typically owes a filing obligation in both countries every year, and the entire planning exercise is about coordinating the two so the same income is never taxed twice.
Do US Citizens Living in Germany Have to File Both German and US Tax Returns?
Yes, in almost every case. Germany taxes individuals who are resident there, generally meaning they have a home available to them or spend a habitual period in the country, on their worldwide income through the local Finanzamt. The United States separately taxes its citizens and green card holders on worldwide income no matter where they live, a rule that has nothing to do with German residency and everything to do with US citizenship or immigration status.
That means the two filing obligations run independently of each other. Filing and paying tax in Germany does not excuse you from filing a US Form 1040, and filing a US return does not excuse you from your German obligations. The mechanisms that keep the same dollar of income from being taxed twice, the Foreign Earned Income Exclusion, the Foreign Tax Credit, and the US-Germany tax treaty, operate on the US side of that equation, not as a substitute for either filing.
How Does Germany Tax Residents on Worldwide Income?
Germany applies its income tax, the Einkommensteuer, on a worldwide basis to anyone who qualifies as a tax resident, and that is the starting point for figuring out what an American in Germany actually owes there before turning to the US return. Employers withhold wage tax, the Lohnsteuer, directly from paychecks throughout the year.
Beyond the base income tax, two add-on charges are common at a high level, without needing exact percentages to plan around them. A solidarity surcharge can apply on top of income tax, mainly for higher earners since a 2021 reform exempted most individuals, and a church tax applies if you are a registered member of a recognized religious community in Germany. Both are calculated as a percentage of your German income tax liability, and both factor into how much German tax is available to credit against your US liability later.
Should You Claim the FEIE or the Foreign Tax Credit on German Income?
For most Americans earning wages in Germany, the Foreign Tax Credit on Form 1116 is the stronger tool, because German income tax rates generally run higher than the comparable US federal rate on the same income. When that is true, the credit can eliminate US tax on your German-source income entirely and still leave unused credit on the table.
The Foreign Earned Income Exclusion on Form 2555 works differently: it excludes foreign earned income up to an annually indexed maximum, for example $130,000 for 2025, from US taxable income in the first place under IRC §911. That can be simpler for income under the cap, but it comes with real costs. The FEIE does nothing for self-employment tax, claiming it can disqualify the refundable Additional Child Tax Credit for a family with kids, and once you revoke the election you generally cannot re-elect it for five years without IRS consent. The Foreign Tax Credit, by contrast, is computed by category under IRC §§901 and 904, and any credit you cannot use in the current year carries back one year and forward ten years on Schedule B of Form 1116, which you can use in a future year when your foreign taxes fall below the Form 1116 limit, for example a year when foreign income is taxed abroad at a lower effective rate and leaves unused limitation to absorb the carryover. Our FEIE versus Foreign Tax Credit comparison walks through the decision in more detail, and the two elections can also be combined across different income types in the same year.
What Does the US-Germany Tax Treaty Do for Double Taxation?
The United States and Germany have a comprehensive income tax treaty, in force since the early 1990s and updated by a protocol signed in 2006, but for most Americans on the ground in Germany the treaty is not where the day-to-day double-tax relief comes from. Like nearly every US treaty, it contains a saving clause that lets the United States tax its own citizens and green card holders largely as if the treaty did not exist, so the domestic Foreign Tax Credit and Foreign Earned Income Exclusion mechanisms described above do most of the actual work of avoiding double taxation on wages.
Where the treaty matters most is in the details: tie-breaker rules for residency when someone could be considered a resident of both countries in the same year, reduced withholding on certain investment income, rules for business profits, and specific provisions touching pensions and social security that can differ from the general rule. Because treaty provisions have to be read in their specific text, any position relying on a specific treaty article beyond the general saving-clause framework should be reviewed against the actual treaty language before you file.
Does the US-Germany Totalization Agreement Cover Social Security?
Yes. A totalization agreement between the United States and Germany has been in force since 1979, and it exists specifically to stop a worker from paying into both countries' social security systems on the same earnings at the same time. Without it, an American employee or self-employed person working in Germany could owe both German social insurance contributions and US self-employment tax on the identical income.
The agreement works by assigning coverage to a single system based on where the work is performed and how long the assignment is expected to last, documented with a certificate of coverage. Depending on the direction of the assignment, the certificate is issued by the Social Security Administration, to keep someone covered under the US system while working temporarily in Germany, or by Deutsche Rentenversicherung, to keep someone covered under the German system. Self-employed Americans in Germany should not assume US self-employment tax automatically applies; our guide to totalization agreements and self-employment tax abroad covers how the certificate process works.
How Are German Pensions and Retirement Accounts Taxed by the US?
Not automatically. Germany offers several distinct retirement vehicles: the statutory pension through Deutsche Rentenversicherung, and private or employer-sponsored options including Riester and Rurup contracts and betriebliche Altersvorsorge, the German equivalent of an employer pension. Being tax-favored under German law does not, by itself, make any of these tax-deferred for US purposes.
The general US rule, under the operation of IRC §§401(a) and 402(b), is that income accruing inside a foreign retirement plan is taxed currently to a US person unless a specific treaty provision defers it. Whether the US-Germany treaty provides that deferral, and for which type of German plan, is fact-specific and has to be analyzed against the actual treaty text rather than assumed. Because the analysis is the same regardless of which country the plan is in, our foreign pension US tax treatment guide walks through the four questions that determine the answer for any foreign plan: whether growth is taxed as it accrues, whether a treaty defers it, what has to be reported, and how distributions are taxed.
Are German Investment Funds Taxed as PFICs?
Usually, yes, and this is one of the more expensive surprises for Americans investing through a German brokerage. A German Investmentfonds, whether it is a mutual fund, an actively managed fund, or many ETFs domiciled in Germany or elsewhere in the EU, typically meets the definition of a passive foreign investment company under IRC Section 1297, with Sections 1291 and 1298 governing the tax treatment. That classification is a matter of US tax law and does not turn on how the fund is taxed inside Germany under its own domestic Investment Tax Act.
Once a fund is a PFIC, the default US tax treatment is punitive: absent a timely election, gains and certain distributions are spread over your holding period, taxed at the highest rate in effect for each of those years, and hit with an interest charge on top. Each PFIC generally requires its own Form 8621 filing, and the reporting obligation applies even in a year where no tax is actually due. This is one of the clearest reasons Americans in Germany are usually steered toward US-domiciled brokerage accounts and US-based index funds for new investing rather than opening a local Investmentfonds or Sparplan through a German bank.
What Else Do You Have to Report to the IRS?
Beyond the income tax return itself, German financial accounts and investments carry their own separate information-reporting obligations that apply whether or not any US tax is owed. These filings are enforced on their own terms, and the penalties for missing them are typically far larger than any tax that would have been due.
The Germany Reporting Stack
Reference- FBAR (FinCEN Form 114). Required when the combined balance of your German bank, brokerage, and pension-related accounts exceeds $10,000 at any point during the year. See our FBAR filing guide.
- Form 8938 (FATCA, IRC §6038D). A separate filing threshold, higher for Americans living abroad, that can require you to list the same German accounts directly on your federal tax return. See our Form 8938 guide.
- Form 8621 (PFIC). Generally required for each German Investmentfonds or other pooled fund that qualifies as a passive foreign investment company. See our PFIC and Form 8621 guide.
Whether you even count as a US tax resident in the first place, if your situation is more complicated than straightforward citizenship, such as a long visit on a work visa before a move became permanent, is a separate question governed by the substantial presence test.
Bottom Line
Living in Germany does not simplify your US tax picture, it adds a second filing system on top of it. The Finanzamt and the IRS operate independently, and the tools that prevent double taxation, primarily the Foreign Tax Credit given Germany's generally higher tax rates, along with the treaty's narrower provisions and the totalization agreement for social security, have to be applied deliberately rather than assumed. Pensions, German investment funds, and foreign accounts each carry their own reporting rules on top of the income tax analysis, and getting any one of them wrong tends to cost more in penalties than the underlying tax ever would have.
Have questions about US expat taxes in Germany? Contact TS CPA for a free consultation. We respond within the same day.
Official IRS and Government Sources
- IRS, Foreign Earned Income Exclusion
- IRS, Foreign Tax Credit
- IRS, US Citizens and Resident Aliens Abroad
- IRS, United States Income Tax Treaties A to Z
- Social Security Administration, US-Germany Totalization Agreement
- FinCEN, Report of Foreign Bank and Financial Accounts (FBAR)
- IRS, About Form 8621
- IRC Section 911, Citizens or Residents Living Abroad