Service in the US Military requires a certain physical fitness which tends to be higher than the fitness expected of people working in a non-Military field.
Correspondingly a medical discharge from the service can happen for various reasons. It can be related to an injury, condition, or disability. In some cases, a medical discharge stems from a condition made worse through military service. In other cases, the injury, illness, or disability may have occurred during or as a result of military service. Either way the medical condition is preventing the US Soldier from serving properly. This is when a medical discharge occurs and – depending on the overall circumstances – there might be a one-time severance pay, recurring payments over a certain period of time or a combination of the two.
Again, these payments will show on your DFAS statement and after your move to Germany you will need to report the income on your German tax return. Reporting income does not automatically mean taxation of this income. However, there is a great chance that a German tax office will have no idea of what to make of it and – just to be sure – include your US Military discharge pay in the German tax base. This is particularly likely when you are not longer tied to the US Military after your move to Germany. Hey, we get it, why not try to tax your income when you cannot seemingly claim exemptions under the tax treaty or SOFA, right?
This is another situation where the taxperts are happy to come in. Like in almost all similar cases where there is not the normal US government “pension” we will dig into your service history and medical record and make sure, that those medical benefits receive the full tax exemption in Germany which they deserve. We cannot guarantee that they will not have an effect on your German tax bracket, however we think this would still be a lot better than having them taxed fully.
Please let us know if the tax treatment of your medical discharge benefits in German gives you an irk. We are happy to make sure the irk goes away.
