Everybody remembers where they were when the towers came down today 23 years ago. This date marked the beginning of the longest combat operations in US Military history – the Global War on Terror.
In the years to come hundreds of thousands of Americans served in war theatres around the world, predominantly in the Middle East and the African continent. Tens of thousands were wounded in action – both physically and mentally. Thousands came back in coffins. They all – to include their families – paid a price for serving their country and defending our freedom.
Several thousand of these Veterans live in Germany and are still serving in the US Military or have started drawing benefits from the time they spent in the Military.
Those benefits vary greatly, depending amongst other factors on the length of service or the nature of discharge.
Calling Germany home however, comes with the obligation to report these benefits to the tax office. Since Germany has done little in recent decades to substantially support global combat operations the experience with those benefits is limited and often leads to misunderstandings which can cause a (former) Service Member to heftily overpay on benefits.
The following will highlight those benefits and sum up how they ought to be treated on the German tax side.
- Ongoing AD and Reserve Pay while assigned to Germany
Germany cannot pierce the tax protection granted under SOFA. It cannot even consider this pay for a tax bracket applied to your spouse.
- Pension benefits
Regular government pensions – to include OPM retirement and TSP benefits – are tax exempt in Germany, but will be considered for the German tax bracket applied to any regular German income. The amount to be considered for this effect hinges on a number of details for each source.
- DIC and SBP benefits
Germany cannot touch those benefits but may include them to put any regular German income in a (higher) tax bracket. If those benefits are service-related or the result of a death in combat, they can be treated as completely tax-irrelevant.
- VA benefits
Those benefits are tax-free in Germany and cannot be considered for any tax bracket effect either.
- SSA disability benefits
Germany has the right to tax SSA benefits, but chances are good to have disability benefits fully expunged from any German tax effect if it can be shown that those benefits are service-connected.
- GI bill and post 9/11 benefits
Those benefits are tax-free in Germany and cannot be considered for any tax bracket effect either.
Please let us know if you are drawing any of the above and you are not sure how to include them in your tax return or feel like your German tax office is mistreating them. Given the lack of experience with those sources of income on the German end we are happy to fend on your behalf and we love to lock horns with an over-ambitious tax man.
Also, our firms are steadfast supporters of US troops and their families. We are consistently granting a 10% Military Discount on our invoices to any Veteran or Soldier in the US Military, to include (surviving) Spouses.
Thank You for Your Service!
