Tax and U.S. military contractors in Germany

Hey,

here are some short infos:

husband american works for contractor in germany since two years
He files an american tax report
I´m german working on the economy
I file a german tax report and I´m in tax bracket I (Steuerklasse I, meaning single, cause my husband don´t pay german taxes he is under the SOFA)

Worked fine so far, now I received a letter from the Finanzamt, they need the tax report from my husband, a proof of payment for american taxes and if he is a technical expert. Can they make him pay german taxes even if he is under the SOFA agreement?

Thanks for any answers, if you need more details please let me know.

Meli

You're not alone. See http://www.stripes.com/article.asp?section...mp;archive=true

The question isn't so much whether he has to pay taxes despite the SOFA, but whether he is legally covered by the SOFA (and if he's not a Technical Expert e.g. then he definitely isn't covered).

Yes, i found that one too, it got me concerned. But there was a other article, that he got all the taxes back, I´ll post it when I find it again. So I don´t know? What you mean by legally under the sofa? Can you be under the sofa not legally? As far as I know, germans authorities, have to approve that. Please let me know when I´m wrong. Thanks alot

Here is the article:
http://www.stripes.com/article.asp?section...mp;archive=true

This quote from the Stripes article says it all:


I once worked with a man who had been a contractor in Germany since he got out of the military in the 1970s and was much like the man in the article. When the 1998 agreement was signed, he left Germany immediately rather than expose himself to legal vagaries, rather cleverly, as it turns out since he avoided this sort of headache and made a lot of money on real estate in the US. I don't know why the contractor in this story thought he could have been extradited back to Germany or had his assets attached in the US by the German tax authorities, but I am glad justice was served in the end.

To the OP- your case appears to differ in two key respects from that of the man in the articles- you and your husband have been in Germany for much shorter a period of time (that's in your favor) and you (the wife) work on the economy (not in your favor). Does your husband have a time-limited contract?

The contract renews every year, but he has co-workers, who worked there since more than 6 years. So as long they win the contract, I guess he could stay there. He didn´t sign a contract, they are there "at will" with two weeks of notice.
What drives me crazy is, he does his taxes at a tax office on post and I do mine with a german tax office, and neither one of them told us that something like this could come up. That might sound stupid, but befor we got the letter from the Finanzamt I really didn´t hear much about you have to be a technical expert to be under the sofa. We have other contractors in our area, and they get paid in Euro and pay german taxes, cause they not under the SOFA, I thougt thats how it works.

What sort of work does he do?

Did you file US taxes jointly or not (basically, do you have a green card)? Also, don't forget that the US and German tax authorities share information with each other.

He is an instructor at a college. No idea if thats considered a technical expert to the germans. We filed jointly, but me as an homemaker, cause I don´t pay any american taxes, thats what we got told to do.

no green card, no visa, I never lived in the States. Yeah thats what I say, so the germans should know that my husband is under the SOFA, cause I think they have to approve that as well??

He may not be considered a Technical Expert (follow up on that, first on the US side).

As for the US return, if you have a green card you must report your income as well (you will get an income tax exclusion from the US) even if it's made on the German economy.

EDIT: I see you don't have a green card, so no, there is no need to report your income on his return.

Yeah, it seems pretty clear that it's his status that is at issue. Maybe the Finanzamt audits every one of these SOFA status cases.

Did you marry in Germany in the last two years? (ie was he working here under SOFA at the time?)
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Basically, as i see it, the German tax authorities are reevaluating your husband's legal status (whether SOFA can apply to him), based upon him intending to "settle" in Germany.

Sorry I always reply so short. What do you think can they make him pay german taxes?

He got out of the military in germany, than got that job. We got married in the USA. My husband and me wanna defenitly go back to the states one day. He is trying to get in the gs system (not so easy), than he would be under the 5 year rule and we would try to move back and forth from germany to USA. But that also just works if he is under the SOFA so he can apply for those jobs.

His problem might be that he got a "European Out" meaning he got permission to stay in Europe rather than going back to the US when he got discharged. That could be perceived as a desire to stay in Europe permamently. But all of this is conjecture. You may want to consider making your plans clear to the Finanzamt when you meet with them, but if your husband doesn't find the definition of a Technical Expert that probably won't matter.

Good luck with this...

Thanks I hope everything works out good. I just don´t see how they can give him the SOFA status, and the germans can take it away from him.
But thanks to all of you

I doubt he is a technical expert because with a German wife who works and pays German tax, it's highly unlikely it would have ever been approved. Plus your husband would not be paying tax on the first $82,000 of his income, I think you'd know about that if it were the case!!. They may be fishing to see if he's TESA approved and milking the system.

Can you ask the Finanzamt why they want to know these questions.

I don´t know, he is not the only one who is working there and is married to a german and they been here much longer and they all under the SOFA. Like I said I think the germans have to approve that as well, if somebody is under the SOFA or not. If anybody knows something diffrent let me know.
I think they wanna tax him, cause he is married to me and they think he wanna settle here, but how we can prove the opposite. He is working as a contractor since two years, and last time I filed my taxes everything went fine.
I found this on the DOCPER webside:

Q:What is this I keep hearing about having to pay taxes under Article X of the NATO SOFA?
A: Although an individual may be granted SOFA status and enjoy the benefits of logistical support (ILS), he/she may still be liable to the German government for taxes. Article X of the NATO SOFA excludes from taxation the income of members of the US Forces and the civilian component so long as the presence of the individual in Germany is "solely "due to his/her employment as a TE/TC/AS contractor employee. Individuals not in Germany "solely" to serve the U.S. Forces (e.g., someone married to a German national), although not found "ordinarily resident" under the special test negotiated under the Exchange of Notes, may still be found to have a tax liability under Article X of the NATO SOFA. Thus, while they have an ID card and the attendant privileges of SOFA status, they may also have German tax liabilities.

Looks like they probably want your husband to pay taxes. There are colleagues my Husband works with who are contractors but still have to pay German tax. It seems as though your are covered under the SOFA agreement but not under TESA, which means he is probably liable to pay German tax.

You can get some of it back from the IRS by claiming it as a deduction, you'd have to ask a tax preparer how that works exactly.

You have a clue how much percent they would take out of his salary?
As long as he is covered on the Sofa, it don´t sound to bad to me anymore, thats my biggest concern that they can take it away from him.

Why not go consult with the base legal/tax office. Surely they would know more about your husbands situation and how it affects German Taxes than most of the people here.

Yes, thanks. Thats what we will do, if they want him to pay german taxes. As more as I read as more confused I´m getting I just wanted to see if somebody was in the same situation befor.

Hey,

thanks again for all your input. I got my tax return yesterday. How it works,is, they do a progressive tax thresholds. Meaning they put my husbands income on my tax return, for that I´m in a higher tax bracket, but they actually just tax my income, just with a higher percentage. But since I´m already in tax bracket one (single), I pay more taxes over the year and get some back with my tax return. Hope I wrote it comprehensible, I´m not a expert

But I appreciate you posting it, because I will be in the same boat next year, but the reverse - I'm the American contractor on the SOFA, my husband-to-be is a German Klasse I taxpayer. I know that some point, I'll get kicked off the SOFA, but want to avoid anything that would get me kicked off before I'm ready to go (aside from, y'know, marrying a German...) My job is not worth doing under the German tax system.

So my income would shove even more of his income into higher brackets... OUCH. He's already into the 45% bracket.

I'll have to ask the office on-post how to handle my US taxes. He does have a US SS#, as he was an exchange university student on stipend, but of course, won't get a Green Card unless we end up moving there for awhile. If it prevents the boat from being rocked, I'll just keep filing single or married, filing separately. I don't make enough to run up against the limits of the Foreign Earned Income Exclusion...