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-   -   Declaring german maternity benefits, parenting money and child money to the IRS (https://www.expatforum.com/expats/germany-expat-forum-expats-living-germany/439858-declaring-german-maternity-benefits-parenting-money-child-money-irs.html)

honeybee89 21st May 2014 11:11 PM

Declaring german maternity benefits, parenting money and child money to the IRS
I have read some great threads about how to declare foreign benefits on U.S. taxes, but nothing addressing my specific situation.

I live in Germany and last year declared my income easily using the FEIE (Form 2555). This year I had a baby, which I'm over the moon about but I'm not thrilled about the tax aspect! For the 2013 tax year I received normal earned income, maternity benefits for 6 weeks preceding and 8 weeks after the birth (these are mostly paid by my employer but also a smaller amount paid by the health insurance company), parenting money for 2 months (8 more months will follow in 2014) from the Germany the country, as well as child money (this will be paid until the child is 26 years old as long as they are in school) from Germany the country. The maternity benefits and parenting money are indirectly taxed in Germany via "Progressionsvorbehalt" which means they are added to other earned income to effectively boost the tax rate. The child money is the german version of a tax credit so it is not taxed and I have understood not necessary to be claimed on U.S. taxes. My husband is a NRA, and we file together in Germany as married and I file "married filing separately" in the U.S..

I don't understand where to claim the variety of German benefits on my U.S. taxes. Is the maternity benefit to be claimed under FEIE (the majority is payed by my employer) or under unemployment benefits line 19 on the 1040? What about the (albeit smaller) portion paid by the health insurance company? And the parenting money? The sum of these benefits in each calendar year will definitely exceed my standard deduction and exemption so does that mean i should fill out Form 1116? Is that advisable to do on my own without a professional? Because of the "Progressionsvorbehalt" our joint income is taxed at a higher rate to indirectly tax these benefits in Germany. Do I claim the entire tax increase as the credit? Or would I have to figure out only the increase based on my earnings? Also- can I claim my child as a dependent on my U.S. taxes? He is a U.S. citizen. From what I can tell via google the child money "Kindergeld" doesn't need to be included since it is essentially a german tax credit. Whew! If nobody really knows much about this I am definitely paying an international accountant to help me, because even though I feel it shouldn't be so complicated (no weird investment accounts, self employment income or real estate or anything) it is! And I am down to the wire because I underestimated the complexity of this and the IRS helplines don't answer their phones anymore! Thanks for any feedback/info people can contribute.

beppi 22nd May 2014 08:46 AM

These issues are VERY complicated. Get a professional tax advisor instead of asking an Internet forum!!!

James3214 22nd May 2014 08:54 AM

I agree with Beppi's comment about asking a professional tax advisor, but not with his comment about not asking here! Someone might be able to help but obviously it will be no substitute for professional advice.

Nononymous 22nd May 2014 02:05 PM

You can also join the millions of Americans abroad who file incomplete returns, or don't file at all. You won't owe anything anyway, and they'll never know.

It's an option worth considering, particularly as it might save you buckets in accountant fees.

Bevdeforges 22nd May 2014 03:50 PM

You may want to take a look at IRS Publication 525 which defines what sources of income do and don't need to be declared. Take a particular look at p. 27 where they mention Welfare and other Public Assistance Benefits - because you may be able to avoid declaring at least some of those benefits under their definitions.

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