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.