Author Topic: US Citizen – German Taxes  (Read 1021 times)

khnyc

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US Citizen – German Taxes
« on: July 28, 2015, 09:56:45 PM »
Hello,
I’ve recently been offered an opportunity to relocate to Frankfurt with my existing employer.  It would be for a 2 year period and I would be hired as a local German employee.  I’m trying to understand the tax consequences and was curious if anyone had gone through this process.

My biggest questions are around the Pension and retirement schemes in light of my plans to FIRE.  My understanding is the 1st pillar is similar to Social Security and I will not receive this if I leave after 2 years.  If I contribute to the 2nd pillar, how and when can I access this money?  Does this account also have deferred tax status from the IRS?  If so, only while I live in Germany or is it until I access the money?

Outside of the increased tax rates, are there any other issues anyone has come across?

Thanks for the assistance.       

WerKater

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Re: US Citizen – German Taxes
« Reply #1 on: July 29, 2015, 11:22:22 AM »
First: I am not a lawyer or accountant or anything. To be sure you might want to ask your prospective employer

My biggest questions are around the Pension and retirement schemes in light of my plans to FIRE.  My understanding is the 1st pillar is similar to Social Security and I will not receive this if I leave after 2 years.
Correct. Currently, 18.7% of your before-tax-salary will go to the pension system ("gesetzliche Rentenversicherung"). Half of that is formally paid by you, half by the employer. You have to contribute for 5 years in order to actually get a pension entitlement, though. If you leave after less than 5 years, you can claim back the part that you paid, but the part paid by the employer is lost.

Quote
  If I contribute to the 2nd pillar, how and when can I access this money?  Does this account also have deferred tax status from the IRS?  If so, only while I live in Germany or is it until I access the money?
I know very little about that. Only few employers actually offer these options as far as I know.  Typically, these are pension schemes which you are not allowed to access before traditional retirement age except possibly at a steep discount.
I have no clue about if and how they would be taxed in the US.

Depending on your salary, you might also have to pay into the public health insurance (about 8% you, about 7% employer) and long term care insurance (1.425%+1.425%). And possibly into unemployment insurance (1.5%+1.5%). But that might depend on your visa status and stuff.

The income tax is also significantly higher than in the US. But an actual comparison is probably non-trivial. Here is a pretty good calculator in english:
http://www.parmentier.de/steuer/steuer.htm?wagetax.htm

I hope this helped a bit.