US Tax Liability for Resident Alien stationed in home country?

[DRTDEVL]

What is the name of your state (only U.S. law)? TN Resident.

I am in the Army, serving in Germany and my wife is German. She has been a resident alien in the US since 1992, I married her in 2001, and I was stationed in Germany in 2006. She has a Social Security Number and a current Resident Alien card from the US, worked several years in the US, and also served in the US Army herself, all the while maintaining her German citizenship. She has been offered a great position taking over a business franchise location here in Germany (where she has been an employee/manager for almost a year), and everything is looking up. She will be liable for the German income and business taxes as well as their version of Social Security for herself and her employees (roughly 52% of her income will vanish in German taxes). Our question involves US taxes.

As a Resident Alien in the US, will she also be required to report the income to the IRS and face additional tax liability? If so, this could be a deal breaker, as her average after tax income/profit will be around 60,000 Euros per year ($85K) and her net profit / gross income will be around 125,000 Euros per year (nearly $180K). When combined with my income (and no dependents), our tax liability would likely increase to roughly $61,000/yr, basically nullifying all but $24K, while the combination of the two Governments involved would reap in $150,000!

Please tell me the rumor isn't true and that she will only be liable to one government instead of two.

 

[davew128]

Rumors was a Fleetwood Mac album if I recall.

In any event, US citizens and resident aliens are subject to tax on their worldwide income, regardless of where they reside. Their are provisions for double taxation, and you should hire a professional to help you with them.

 

[LdiJ]

What is the name of your state (only U.S. law)? TN Resident.

I am in the Army, serving in Germany and my wife is German. She has been a resident alien in the US since 1992, I married her in 2001, and I was stationed in Germany in 2006. She has a Social Security Number and a current Resident Alien card from the US, worked several years in the US, and also served in the US Army herself, all the while maintaining her German citizenship. She has been offered a great position taking over a business franchise location here in Germany (where she has been an employee/manager for almost a year), and everything is looking up. She will be liable for the German income and business taxes as well as their version of Social Security for herself and her employees (roughly 52% of her income will vanish in German taxes). Our question involves US taxes.

As a Resident Alien in the US, will she also be required to report the income to the IRS and face additional tax liability? If so, this could be a deal breaker, as her average after tax income/profit will be around 60,000 Euros per year ($85K) and her net profit / gross income will be around 125,000 Euros per year (nearly $180K). When combined with my income (and no dependents), our tax liability would likely increase to roughly $61,000/yr, basically nullifying all but $24K, while the combination of the two Governments involved would reap in $150,000!

Please tell me the rumor isn't true and that she will only be liable to one government instead of two.

Ok...this is how it will work.

You and she, on your joint return, will have to report all of your income, world-wide. The first approx 84k of her net income (after expenses and employer taxes but before income tax) is excludable from US income tax. For any amount above the 84k, she will get a credit for foreign taxes paid.

If she is self employed however, she will have to pay self employment tax on all of the net income (again, after expenses and employer taxes but before income tax), but again, she will get credit for foreign taxes paid.

All in all, the system is set up so that double taxation does not occur.

You WILL need a tax professional to handle the return, because it will be complex.