Germany–U.S. Employment Situation
German Employer – Employee Working From the United States
If an employee of a German company moves to the United States and continues working from there, U.S. federal and state income tax, payroll, Social Security and employer-tax obligations may arise. At the same time, remaining German tax and social-security obligations must be reviewed.
United States as the Place of Work
A German Employment Contract Does Not Prevent U.S. Tax and Payroll Obligations
If the employee physically works from the United States, U.S. federal and state rules may apply even if the employment contract remains with the German employer and salary continues to be paid through German payroll.
The employee’s personal tax position must be analyzed separately from the employer’s payroll, social-security and corporate-tax obligations.
On the German side, the key questions are whether the employee remains subject to unlimited or only limited German tax liability after the move, whether German workdays continue and what this means for German wage-tax withholding.
Initial Questions
These Facts Determine the Case
Where is the work physically performed?
U.S., German and third-country workdays should be documented separately.
Where is the employee tax resident?
The end of German residence and the beginning of U.S. tax residence should be determined precisely.
Which U.S. state?
State income tax, payroll withholding and employer nexus vary significantly by state.
Is the arrangement temporary?
A qualifying assignment can be treated differently from a permanent relocation for tax and social-security purposes.
What function does the employee perform?
Sales, management, negotiation and contract authority can create U.S. tax exposure for the German employer.
How is compensation processed?
Continuing German payroll does not automatically eliminate U.S. payroll or shadow-payroll obligations.
German Tax Consequences
German Taxation Does Not Necessarily End Completely After the Move
Ending Unlimited German Tax Liability
German unlimited tax liability does not end merely because the employee deregisters. The decisive question is whether a German residence or habitual abode actually continues.
Leaving GermanyLimited Tax Liability After Departure
After German residence ends, certain German-source income may remain subject to limited German tax liability. For employment income, the physical place where the work is performed is especially important.
Limited Tax LiabilityGermany–U.S. Tax Treaty
Workdays Drive the Allocation of Employment Income
U.S. Workdays
Compensation for services physically performed in the United States is generally allocated to the U.S. work state.
German Workdays
Compensation for work physically performed in Germany may remain taxable in Germany.
Bonus & Equity Compensation
Bonuses, RSUs, stock options and similar awards may require allocation over earning or vesting periods.
U.S. Taxation
Working in the United States Can Trigger Federal and State Tax
Federal Income Tax
If the employee becomes a U.S. tax resident, worldwide income is generally subject to U.S. federal income tax. Before U.S. residency begins, compensation for services performed in the United States may already constitute U.S.-source income.
State Income Tax
The specific state of residence and work must also be reviewed. State residency, sourcing and withholding rules can differ materially from federal rules.
Payroll
German Payroll Does Not Automatically Replace U.S. Payroll
Federal Withholding
Compensation for work performed in the United States may trigger U.S. federal wage withholding and related employer obligations.
State Payroll
State withholding, unemployment insurance and employer registrations may arise separately.
Shadow Payroll
For assignments, German payroll may continue while a U.S. shadow payroll reflects local tax and reporting obligations.
German Wage Tax
Whether German wage-tax withholding should continue depends on the employee’s German tax status, workdays and the treaty position.
Assignment or Permanent Relocation?
The Classification Has Major Payroll and Social-Security Consequences
Temporary Assignment
If the German employment relationship continues and the U.S. work is intended to be temporary, the Social Security Agreement may preserve German coverage.
Permanent Work in the United States
Where the employee’s work location is permanently shifted to the United States, the treaty framework generally does not support indefinite continuation of German social-security coverage.
U.S. Employer Risk
The Employee Can Create U.S. Tax Exposure for the German Company
U.S. Trade or Business
Regular business activities carried on by an employee in the United States can trigger an analysis of whether the German company is engaged in a U.S. trade or business.
Permanent Establishment
The treaty may limit federal corporate taxation, but fixed-place and employee activities still require a separate permanent-establishment review.
Agency Risk
If the employee regularly negotiates or concludes contracts or performs key sales functions, U.S. tax-presence risk may increase.
State Nexus
An employee in a U.S. state may independently create state payroll, income/franchise tax or registration consequences even where the treaty limits federal taxation.
Checklist
Information to Review Before U.S. Work Begins
Employment Agreement
Document employer, work location, duration, compensation and return plans.
Departure From Germany
Review German residence, deregistration and any retained dwelling.
U.S. Status
Clarify visa, Green Card status and expected U.S. tax-residency starting date.
U.S. State
Identify each state of work and review state tax and payroll rules.
Workdays
Track Germany, United States and third-country days separately.
Job Function
Document contracting, sales, management and representation authority.
Social Security
Review assignment status and D/USA 101 before work begins.
Payroll
Coordinate German payroll, U.S. payroll and any shadow payroll.
Corporate Tax Risk
Analyze federal PE/USTB and state nexus separately.
The Other Side of the Case
U.S. Perspective
German Employer – Employee Working in the U.S.
The corresponding taxrep.us page addresses the same situation from the U.S. perspective: federal and state payroll, Social Security, Certificate of Coverage, U.S. trade or business, permanent establishment and state nexus.
Related Topics
More Germany–U.S. Employment Topics
Germany–U.S. Tax Advice
Your Employee Will Be Working From the United States?
We coordinate the German and U.S. tax treatment, payroll, social security and the possible federal, state and corporate-tax consequences for both employer and employee.
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Germany–U.S. Social Security
A Qualifying Assignment May Preserve German Social-Security Coverage
For a temporary assignment from Germany to the United States, the Germany–U.S. Social Security Agreement may allow German social-security law to continue to apply so that U.S. Social Security does not apply in parallel.
For permanent employment in the United States outside the assignment rules, the U.S. system may instead become applicable.