Mostly every American who leaves the Military receives education benefits. Established after World War 2 and with various changes to the program over time, today the so called “Post-9/11 GI Bill (Chapter 33)” provides financial assistance for
- tuition and fees
- housing
- books and supplies
- a move from a rural area
to those who served their country. While the assistance for the above varies depending on the location of your school, whether you are an in- or out-of-state student and whether you attend full-time or part-time, the benefits paid under the program are tax-free in the US.
Comparable benefits are paid from the Fry scholarship.
However, since this support is not restricted to attendance of US schools, veterans attending German universities, who move to Germany during a year in which they still draw those benefits or those who attend global campuses of US colleges are often wondering if these benefits pose any tax issue on the German end.
The US-German tax treaty would definitely allocate the taxation rights of this “other” income to Germany.
However, under German law taxation should not occur under any circumstance either. Plenty of applicable laws and available court rulings actually prevent taxation, rendering these benefits also tax-irrelevant.
What you should not deduct from this is, that you do not need to worry about it at all. First, we definitely recommend reporting these foreign benefits, but simultaneously provide the reasons as to why they are tax-free. Second, not every tax office is familiar with them, so you might need to do some convincing along with your return. Third, reporting the benefits with your annual filing will make sure there is no reason a tax office can come back at a later point and accuse you of withholding information on the benefits with bad intent.
So, for those who are currently drawing US education benefits we are happy to include them in your tax return and make sure they go untaxed. For those who have drawn them but might have forgotten to include them in any tax return, we are happy to amend previous years and ensure tax-exemption along with justification as to why the omission was a good-faith mistake.
Again, please let the taxperts know if this is a tax aspect where you want our support.
