The answer is yes – that is if they want to and you let them.
Honestly, we do not know why some German tax office are so gung ho about taxing US money that is tied to time spent in the US Military, a combat theatre or is a reimbursement for damages suffered while deployed.
We guess it is that after 80 years of US-backed peace in Europe some German tax clerks got some know-it-all-and-better attitude now. Mostly they are wrong, though. However, if they do not get put in place they will continue running with this attitude without looking left or right.
How do you put them in place? As is the case with most other similar benefits, when you can show credible evidence that the SSA disability benefits you are receiving are compensation for damages and injuries suffered while deployed with the US Forces they cannot be included in a German tax base and should not have an effect on your German tax bracket either.
With SSA disability benefits the US-German tax treaty needs to be worked a bit more intensely than with just VA benefits, but it is possible to make a good case. What does a good case look like? Well, we would need to look into your VA application paperwork, the VA disability rating letter as well as your SSA benefit application and your DD214. When those documents align right, the SSA disability benefits should be as tax-irrelevant as your VA benefits.
We think it is important to point out at this point that SSA disability benefits are a more contested aspect with the Germans as your SSA-1099 will not say anything about disability or the benefits tied to it. For this reason a German tax office will first and foremost look at including those benefits in your German tax base. If those benefits have gone unreported for a while because you thought they did not need to be reported on the German end a German tax office might even scream “tax fraud”.
Given the above, please do not take this issue lightly and let us know if you feel like you have unreported SSA disability income from service in the US Military or the tax office has already started asking about them.
Update June 2026: We have covered VA benefits extensively in several articles. However, some German tax offices have argued that those benefits are not as tax irrelevant as they are under US law, and would need to be considered for tax rate purposes (=Progression), effectively putting people’s German tax base in a higher tax bracket due to the circumstance that they are drawing VA benefits. At taxpatation we have always thought this was unsubstantiated, grossly wrong and put up a fight over it. On April 23 the German Tax Supreme court has confirmed this stance and ruled that the VA benefits are NOT to be considered even for tax rate purposes. Effectively this means that you should make prosaic mention of them but you will not see any tax effect at all. Albeit the ruling was not for one of our clients we are happy that it mirrored a position we have long been taking and fighting for separately with various tax offices! We would like to point out though that the ruling pertained to actual VA disability benefits, not DIC ones, but there is no reason the latter should see any other treatment. However, we continue to advice that there should be at least a prosaic mentioning, so one can fight it out in the open with the tax office if need be. Please let your taxperts know if you are wondering whether your VA or DIC benefits are being treated properly – as always, we are happy to brawl on your behalf!
