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American moving from USA to Germany, paying taxes on US salary first half of year and german salary second half of year

Taxes on Salary half year in US and half in Germany
Hello,

In the year 2015, I lived and earned a salary in the USA, paying normal income taxes as a US citizen. In June, I left my job in the US moved to Munich and started earning a salary there paying normal income taxes and insurance. For tax purposes, I will have passed the residence test in Germany (being there for more than 6 months), and by June 2016 I will have passed the USA's test for a foreign residence, 330+ days out of 365 days abroad. Since a foreign resident gets an automatic extension on their income tax until June 15, I believe I will be considered a German resident on both tax returns for the year 2015.

My question is in regards to German income taxes on my USA salary, I know I have to claim all income from both countries on both tax returns, but since my USA salary was taxed in the US when it was earned will I have to pay taxes to germany on this income?

I have only found one link that mentions a situation like this:
Filing German income tax returns for expatriates | Somann & Scheller]
This link states: Example: Mr. A moves to Germany on July 1st in order to work there. His foreign source income includes a salary earned in his home country for the period January 1st to June 30th. He also earns a rental income for a property in his home country for the full calendar year. From July 1st on, he earns a salary in Germany. Only the German salary is taxable in Germany. But for purposes of calculating the German income tax rate, the foreign income has to be declared.

Is this true?

Thanks for your help
 

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....I know I have to claim all income from both countries on both tax returns, but since my USA salary was taxed in the US when it was earned will I have to pay taxes to germany on this income?
That's extremely unlikely. You would check these parts of the German tax system:

1. Does the U.S.-Germany tax treaty say you should do something a certain way? If so, you can do that.

2. Does Germany simply ignore what happened before you arrived? If so, you can take that approach.

3. Does the German tax code include a foreign tax credit or foreign earned income exclusion? (Almost surely it has a foreign tax credit at least.) If so, you can choose that.

....But for purposes of calculating the German income tax rate, the foreign income has to be declared.
That's #2 above. If that's what the German tax code allows, great.

Just to back up a bit here, you have a couple options on the U.S. side:

1. File IRS Form 4868 to give you a filing extension to October 15, 2016 (due date of your return at the IRS). For the period in 2015 when you were physically outside the United States you can then take the Foreign Earned Income Exclusion/Foreign Housing Exclusion (IRS Form 2555). Then take the Foreign Tax Credit (Form 1116, and might be more than one) for any German taxed income that was not excluded.

2. Skip the Form 2555 entirely and just take the Foreign Tax Credits.

Which is better? It's hard to say. If you can run the calculations both ways then decide, that's great. Tax preparation software, even the free stuff (TaxAct, TaxSlayer, etc.) is very helpful.

Don't forget your FinCEN Form 114 if you meet the filing threshold. Germany probably has something similar on their side.
 

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Basically, you declare worldwide income on both your US and German tax forms. On the US form, you either exclude (via form 2555) your German earned income (i.e. salary earned while resident in German) or you do the Foreign Tax Credit thing. On the German forms, there will be some way to indicate the date you moved to German and to make the appropriate allowance for your foreign (to German) income. Some countries grant you a tax credit equal to the local tax on the amount. Others actually exclude the income in some manner when making the final tax calculation.

The tricky part is any "unearned" income - interest, investments, etc. You often have to offset tax in the "other" state with tax paid in the country where the income was generated, but there are a number of different systems.

It all starts to make more sense when you have the forms in front of you and can work with your actual numbers - and we're a little bit early for that just yet.
Cheers,
Bev
 
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