Taxes when you move between Germany and the US

Taxes when you move between Germany and the US

The two systems do not meet in the middle. A move does not prorate your tax or hand you whichever bill is lower. Each country applies its own rules to the same income, the results stack, and a credit mechanism decides how much of the overlap you pay twice. That mechanism runs in two currencies, on two calendars, and it is fragile in the year you cross.

How the two systems overlap

Germany taxes residents on worldwide income and non-residents on German-source income. The United States taxes citizens and green-card holders on worldwide income wherever they live, for as long as they hold the passport or the card. One salary can be fully taxable on both sides in the same year.

The overlap is not symmetrical. A German who spends four years in Texas and goes home stops being a US taxpayer the day she leaves; a US citizen who does the same in reverse never stops.

For a single filer the two tariffs diverge early and stay apart. At 20,000 the German bill is about 1,640 and the US federal bill about 2,162. At 40,000 it is 7,321 against 4,562. At 60,000 it is 14,415 against 8,114. At 80,000 it is 22,688 against 12,514. Each pair is the same taxable income in either currency; the point is the shape of the two tariffs, not an exchange rate.

That German lead is not the problem. It is usually the solution. Where the German bill is higher, the excess becomes a foreign tax credit that removes the US liability on the same income, dollar for dollar, up to the US amount. What the credit will not do is refund the difference.