Owing self-employment tax to the U.S.

114 posts in this topic

Certificate of coverage has to be requested annually.

 

If you neglect to request it or it has not yet arrived in time to attach to your US tax return, just file Schedule SE. Put "0" where it shows tax owed and overwrite the line with the following:  "TREATY EXEMPT, IRC § 1401(c)

GERMANY-USA Soc. Sec. Treaty

Certificate of coverage applied for."

 

Odds are you will never hear anything back from the IRS.  But if you do, your certificate should be in your hands by then and you will be able to respond to an IRS inquiry appropriately.

 

 

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On 11/4/2012, 7:24:31, Straightpoop said:

Your advice to obtain the Vordruck from the DRV attesting to the fact of your coverage under the German system is correct and good advice (although as a practical matter the IRS almost never insists on seeing it).

 

So I went the DRV today and asked them for this form, and they wanted first need to me to make actual contributions for year 2016 (so this is in contrast to posters above saying it's possible to receive this form without paying contributions). But the advisor I spoke with said that they had no idea about this form... that maybe I need my Krankenkasse to send it (now reading this forums again, I'm sure this is not true). Agh! 

 

I'm trying to file my US taxes now, and wondering if just a letter confirming that I have made payments into the DRV is sufficient for this requirement? Or can I just send a letter with my US taxes saying that the certificate is requested and in process? or did I just speak to someone that was misinformed? 

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They're clueless, you couldn't even contribute for 2016 if you wanted to, the deadline for that was 31. March 2017.

 

Just send the letter contained in this post to Deutsche Rentenversicherung (no, not to your Krankenkasse, they would have been responsible for form E101 - which doesn't exist anymore, and is now called A1 - and which deals with posted/seconded workers, so they also mixed that up):

and in a few weeks you will get the paper certificate D/USA 101-A by snail mail.

 

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You're amazing, thanks so much! It's often hard to tell if I'm the misinformed one, or I just got the wrong person at the wrong time. This is great news! 

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I'm new to all of this, but wanted to share my recent experience obtaining form D/USA 101-A.

 

Where to send your request:

If your last Beitrag was paid to a Regionalträger (ehemalige Landesversicherungsanstalten), then your request should go to Deutsche Rentenversicherung Nord.  If your last Beitrag went to Deutsche Rentenversicherung Bund (ehemals Bundesversicherungsanstalt für Angestellte), mail your request to Deutsche Rentenversicherung Bund.

Page 54, in German:  http://www.deutsche-rentenversicherung.de/cae/servlet/contentblob/232760/publicationFile/51549/13_arbeiten_deutschland_usa.pdf

Also, in German:  http://www.eservice-drv.de/Raa/Raa.do?f=SVABKUSADVR4.3

 

It took me about 3 weeks to receive the form after mailing my letter.  I have not made any payments for over 10 years into the German system, certainly none in 2016 after moving here from the US.  Incidentally, the Deutsche Rentenversicherung Bund made it easy for me to know where to send my request, because they had just sent me materials for the Sozialwahl 2017.

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I am a little confused -

 

I am not self-employed. I am full-time employed in Germany in 2016 and had an old employer in the US from 2015. The old employer sent me a bonus for 2015 which I received in 2016 and which included social security payments withheld in 2016. 

 

I am now filing my 2016 taxes (I had an extension til October). Does the US-German agreement allow me to get a refund of the US social security payments that were withheld?

 

If so, I guess I need the D/USA 101A ! Then - @spoctar, I don't understand how to determine which address to send the request for the D/USA 101A to. Where do I see who I last paid my contribution to since it happened through my normal German employee paycheck? 

 

Thanks for your help!!

 

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On 7/30/2017, 6:54:37, dpenn said:

I am now filing my 2016 taxes (I had an extension til October). Does the US-German agreement allow me to get a refund of the US social security payments that were withheld?

 

No.

 

On 7/30/2017, 6:54:37, dpenn said:

 

If so, I guess I need the D/USA 101A ! Then - @spoctar, I don't understand how to determine which address to send the request for the D/USA 101A to. Where do I see who I last paid my contribution to since it happened through my normal German employee paycheck?

 

You don't need nor are you eligible for a D/USA. The D/USA is intended for self-employed individuals working in Germany to certify their "coverage" under the German system so as to avoid an obligation to pay into both systems.  Your prior US employment was never covered under the German system and your current German employment is not covered under the US system.

 

No treaties, either the income tax treaty or the Social Security Treaty have any application to your situation.

 

In the unlikely event that your former US employer withheld too much social security contributions on your 2016 wages, the place to claim a refund of such excess is on Form 1040.

 

 

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This is an important thread, thanks to all who contributed here over the years.

 

My question: as a US citizen employee working for a German company (which is not a US subsidiary, it is only German), I have my "SV-AN-Bescheinigungen" statements from payroll, and the payslips themselves showing social taxes, but no other certificate or proof that I paid into the German system while working here. 

 

Are these statements enough or must I get further certification from DRV that I paid in to social taxes while working? (and prove I don't owe social security in the US?)

 

 

 

 

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@c0usinlarry

 

The subject of the thread is the US Social Security tax levied on self-employed persons.

 

You are not self-employed.

 

The subject of the thread has no application or relevance to you.

 

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Well I can't seem to delete my question. I found, I think, the answer online. 

 

But contrary to advice above, the IRS says you're NOT supposed to submit a Schedule SE and put 0. It says "Do not complete Schedule SE. Instead, attach a copy of the statement to Form 1040 and enter “Exempt, see attached statement” on Form 1040, line 57."

 

By statement, they mean your Certificate of Coverage. 

 

My tax advisor used to just attached a note that I was exempt and mentioned all the treaties and laws, but then the IRS came back and wanted $10K in back self-employment payments. 

 

 

 

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On 6/21/2018, 3:22:46, CarolynS said:

But contrary to advice above, the IRS says you're NOT supposed to submit a Schedule SE and put 0. It says "Do not complete Schedule SE. Instead, attach a copy of the statement to Form 1040 and enter “Exempt, see attached statement” on Form 1040, line 57."

 

By statement, they mean your Certificate of Coverage. 

 

My tax advisor used to just attached a note that I was exempt and mentioned all the treaties and laws, but then the IRS came back and wanted $10K in back self-employment payments. 

 

 

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In my understanding, this and the advice above do not contradict each other. Strictly speaking (ideally), you have the Certificate of Coverage (and not the Schedule SE) to submit with your return, but if you need to submit your return by the deadline and have requested but not yet received the Certificate of Coverage, this may suffice as a stop-gap solution (to let them know somewhere/somehow what the situation is) until you get the Certificate of Coverage and can submit it later (whether as soon as you receive it, or upon request, should the IRS contact you).   

 

Did you end up having to pay the $10k in the end, or could you provide a Certificate of Coverage in the end to show that you were exempt?

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On 4/26/2016, 8:14:24, PandaMunich said:

It's either 60 contribution months to German public pension insurance or an equivalent contribution to a private pension insurance, this is laid down in §9 Absatz 2 Nr. 3 Aufenthaltsgesetz:

 

"(2) Einem Ausländer ist die Niederlassungserlaubnis zu erteilen, wenn

3. er mindestens 60 Monate Pflichtbeiträge oder freiwillige Beiträge zur gesetzlichen Rentenversicherung geleistet hat oder Aufwendungen für einen Anspruch auf vergleichbare Leistungen einer Versicherungs- oder Versorgungseinrichtung oder eines Versicherungsunternehmens nachweist; berufliche Ausfallzeiten auf Grund von Kinderbetreuung oder häuslicher Pflege werden entsprechend angerechnet,"

In other words a US retiree seeking PR in Germany can count US Social Security in lieu of German Social Security? The idea is that one should have a means of guaranteed support in old age? 

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Hey everyone, I've been lurking on these forums for awhile, and have found this thread to be very useful in preparing my U.S taxes this year. I wanted to take a moment to sum up everything I did this year here for future readers and also to make sure I have completed everything correctly before I send it off.

 

A bit about my background as its relevant for tax purposes: I moved to Potsdam, Germany in December 2016, registered for my residency and opened a Gewerbe. I'm a dual citizen so I thankfully didn't have to worry about visas. This was my first time living here though so there was a lot to learn. I was a boatbuilder by trade in the United States, and submitted documents with the Handwerkskammer to establish equivalency but I knew it would take some time (it took over a year and I was only given partial equivalency), so my Gewerbe is listed only as a Kulissenbau und Dekorateur as these are not protected trades and I had a contact to hook me up with work in this field. I would echo the persistent advice preached here to learn as much German as you can before you come, because it still won't be enough. I was lucky to have a German friend to help me with paperwork and bureaucratic hoops. I filed my German taxes with Buhl and it seemed to go fine.

 

Let's move on to U.S. taxes. So for me, as a new self-employed small business owner making a modest sum, I am sending the following forms to Uncle Sam:

 

1040  (IRS doc, the standard tax return)

Schedule C-EZ  (IRS doc, to log my self-employment income)

2555  (IRS doc, to claim the foreign earned income exclusion from the IRS)

Form 8965 (IRS doc, to claim exclusion from the healthcare penalty)

D/USA 101A  (obtained from Deutsche Rentenversicherung Nord in Hamburg after sending them a letter similar to the model from earlier on this thread. A letter to Berlin DRV received no response.)

OR-40-N  (Oregon nonresident state return, as my U.S. driver's license still states this address, sending it along with copies of the federal tax documents and D/USA 101A)

 

I know there's a form to report Foreign Bank Accounts too, but it was a modest year and I never had more than 10k US$ in there, so I don't think I have to file it. As far as I can tell, E-filing my return is impossible when claiming the Self-Employment Tax Exclusion because of the need to write "Exempt, see attached statement" on Form 1040, Line 57. I believe it is also impossible because I listed a foreign address. I am not filing Schedule SE because I claimed the Self-Employment Tax Exclusion. As for Software, I started with TurboTax but got so lost that I started over with TaxAct, which I found to be a little clearer because it tells you which forms you're filling out, although the interface is a little less pretty.

 

Couple useful websites:

https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

https://www.ssa.gov/international/Agreement_Pamphlets/germany.html

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test

https://www.irs.gov/pub/irs-pdf/p54.pdf

 

While I figure few Americans are loony enough to try exactly what I did, just in case that kindred soul is out there... let my post be the post that wasn't there for me. Or more likely, I hope it can shed some light for someone in a similar but different situation. Also, should be clear I'm in no way a tax professional, this isn't qualified advice, and the chorus of people saying get a tax preparer are probably correct.

 

If anyone sees any flaws or red flags in my preparations here, please let me know! I hope I've done enough homework that I don't get directed to the search bar. Otherwise, I have a few small open questions at this point if someone wants to take a crack, but I think the answer to all of them is no.

 

1) Should I / Can I claim my payments into the German healthcare system as a deductible?

2) Do I need to attach any forms stating I filed for an electronic extension in TurboTax?

3) Do I need to file quarterly for my business if I expect my API to stay at 0?

4) Is there a problem with using the code 999999 for my business type in Schedule C? (translated myself as Scenery Builder and Decorator)

5) Do I need to have/send any more documents to prove that I established a new tax home in Germany? Or something to list all my business income invoices? Or something that proves my eligibility for the Physical Presence Test to claim the Foreign Earned Income Exclusion?

6) Can anyone personally recommend me a professional who is able to file both my German and American taxes for me next year? In the end, I don't think this was worth the effort.

 

I feel pretty old and boring posting this as my first comment on Toytown (hello everyone, by the way), but I hope this is useful to someone out there and saves them some of the many hours I have spent researching this complicated mess. I just want to say thanks to the contributors in this thread for their help as this is mostly a restated summary of what came before.

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I want to thank everyone who contributed so much information to this thread over the years. I only have myself to blame that I am now trying to file my US tax return myself, without help from an accountant, 6 days before it's due and I just found all the info in this thread about the German certificate regarding SE taxes. I don't have this certificate and it seems it's too late now for the 2017 filing, but looking over what my accountant has sent the IRS, I don't think he ever sent this to them, either. Just wondering if @CarolynS could tell us what happened? Did you have to actually pay the $10k? Thanks so much for any word of advice.

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If living overseas and if you've gotten an initial extension to Oct 15, you can request an additional 2 month extension to Dec 15 by writing a letter to the IRS by Oct 15. There are a couple of websites describing what you should include in the letter, like what you're requesting, for which year, which tax form, for what reason. There are references to a section called "Extensions" in Publication 54.  If it's approved, you won't get a notification, if rejected they'll write you. There are other methods of getting an extension related to the residency tests.

https://hodgen.com/income-tax-return-extension-december-15-2017/

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On 10/9/2018, 4:46:53, susede said:

I want to thank everyone who contributed so much information to this thread over the years. I only have myself to blame that I am now trying to file my US tax return myself, without help from an accountant, 6 days before it's due and I just found all the info in this thread about the German certificate regarding SE taxes. I don't have this certificate and it seems it's too late now for the 2017 filing, but looking over what my accountant has sent the IRS, I don't think he ever sent this to them, either. Just wondering if @CarolynS could tell us what happened? Did you have to actually pay the $10k? Thanks so much for any word of advice.

No! I didn't have to pay the 10K because I had proof that I paid it to the German tax authorities. I supplied them with the document attesting to my payment of (Rentenversicherung) social security to Germany for those dates. I also supplied the IRS with a certified translation of the document. It all went away but it was a huge hassle. The next year I supplied the document about self employment payments with that year's tax return. No problem. 2016 however I got another letter about self employment due even though I again supplied the proof that I paid it to Germany. My accountant says the forms must have been separated at the IRS and to just send them the document again. I did and am awaiting their decision. 

 

Had I not had proof that I paid in Germany, I'm sure the US would have wanted their payment. 

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Thanks so much for elaborating! I'll guess I'll wait and see what happens with my return. And make sure to get that form for next year.

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It just won't end. Again the IRS wants my self-employment tax. I dutifully follow the instructions of my tax accountant and attache an addendum to my American income tax form stating why I don't pay self-employment tax. I attach a copy of my German certificate that details that year's retirement scheme contributions to Germany. I attache a translated copy of said document. Then, every other year, oddly, I get a bill for self-employment tax from the IRS. Last time it took them six months to sort it out. This time they're wanting another copy of all of the documents I submitted with my returned tax forms. Perhaps they were lost. Plus, and this is a new one, they want me to fax them a copy of the US-Germany agreement that states that I do no own tax to the US if I pay it in Germany, which can be found on their own IRS.gov website, along with the document from the US social security administration website. Unbelievable! So if anyone finds themselves facing the same thing, here are those documents. 

 

https://www.ssa.gov/international/Agreement_Pamphlets/germany.html

 

https://www.irs.gov/pub/irs-trty/germany.pdf
 

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@CarolynS

 

It is not clear what, exactly, you have been filing with the IRS that has produced this perennial problem.

 

If you have self-employment income then that income and related expenses are reported on Schedule C (or Schedule C-EZ).

 

If your self-employment income is subject to/covered by the German social security system - regardless of whether you are required to actually contribute to that system - you should annually apply for and receive a "Certificate of Coverage" AKA Form DUSA/101 from the Deutsche Rentenversicherung Nord and attach a copy to your return.  If you file something else, e.g. a statement of contributions, a letter from your Steuerberater, a legal treatise on US Social Security obligations of US citizens or a letter from Angela Merkel saying you're a good person and don't have to pay into both systems, etc. you are wasting time and paper. 

 

Only the DUSA/101 qualifies as evidence of "coverage".

 

In addition, you may be making the - entirely excusable - error of failing to file Form SE with a big fat 0 (zero) where the computation of US Self-Employment tax would ordinarily be found.

 

As you pointed out in a earlier post, the IRS instructions to Form SE say not to file it if you are treaty exempt.

 

Unfortunately, whoever wrote those IRS instructions was wrong and failed to take into account two salient features of the US tax system:

 

1.  US taxpayers self assess their tax liability.  There is no assessment in response to a return unless the return itself fails to assess. (An self-assessment can be challenged; by audit etc. but that's a difference story.)  That's where feature no. 2 comes into play:

 

2.  If the taxpayer fails to compute/assess their own tax, the IRS computer will do it for them.  The computer will NOT read your attachments explaining why you did not do the computations underlying your self-assessment; it will compute first (using your Sched C data), bill you second and then when you squawk - and only then - will a carbon-based unit at the IRS get involved. By then your day is ruined.

 

Self-employment taxes are computed separately from income taxes. They are computed - and ultimately assessed - using Form SE.  Software used by return preparers and the IRS will automatically generate and carry the values on your Schedule C (C-EZ) to Form SE (or the IRS computer's digital equivalent) where SE tax will be computed.  By overriding the software's computation with a "0" and filing Schedule SE together with an overprint on the form SE next to the "0" explaining that the self-employed income is "Exempt by treaty read in conjunction with IRC §1401(c) certificate of coverage attached" you self-assess your SE tax liability on the IRS form designed for that purpose and simultaneously preempt the IRS computer from doing the (wrong) assessment for you.

 

In my 35 years of preparing US tax returns for myself and others I have never failed to include Form SE to self assess a "0" self-employment tax liability. Computer's happy. Everyone's happy.

 

Try it next time.

 

 

 

 

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