Germany–U.S. Employment Situation
Working in Germany and the United States
Employees who regularly work in both countries often need to allocate employment income based on actual workdays. Tax residence, physical work location, employer structure, payroll and social security must be analyzed separately and then coordinated.
Two Countries of Work
Employment Income Does Not Automatically Follow Only the Country of Residence
An individual may be tax resident in Germany while regularly working in the United States, or vice versa. For employment income, the physical place where the work is performed is a key factor in addition to tax residence.
Where services are performed in both countries, compensation may therefore need to be allocated between Germany and the United States. Payroll and tax-return obligations may also arise in both countries.
Social security follows a separate set of rules and should not be inferred from the income-tax allocation.
Starting Points
Four Layers Must Be Reviewed Separately
1. Tax Residence
Residence determines the treaty residence state and affects the method used to relieve double taxation.
2. Physical Work Location
Each workday generally needs to be assigned to the country in which the services were physically performed.
3. Payroll & Wage Tax
The employer must determine whether withholding and registration obligations arise in Germany, the United States or both.
4. Social Security
The Germany–U.S. Social Security Agreement determines which social-security system applies independently from the income-tax result.
Workday Allocation
Physical Presence Is the Central Allocation Factor
Where an employee works in both countries, regular salary is often allocated based on actual workdays. A reliable calendar and travel record is therefore essential.
German Workdays
services physically performed in Germany
U.S. Workdays
services physically performed in the United States
Home Office
A day worked from a home office in Germany is generally a German workday; a day worked from a U.S. home office is generally a U.S. workday.
Business Travel
Travel days should be documented based on the actual location and services performed. A pure travel day is not automatically assigned in full to one country.
Bonus & Equity
Bonuses, RSUs, stock options and other multi-year compensation may require allocation over earning or vesting periods.
Germany–U.S. Tax Treaty
Both Countries May Have Taxing Rights Over Different Portions of the Compensation
Work Performed in Germany
Germany may have taxing rights over compensation attributable to services physically performed in Germany.
Work Performed in the United States
The United States may have taxing rights over compensation attributable to services physically performed in the United States.
183-Day Rule
Under certain treaty conditions, taxing rights may remain with the residence state even though services are performed in the other country. All treaty requirements must be satisfied.
Avoiding Double Taxation
Where both countries tax the same compensation, treaty relief mechanisms and foreign tax credits may apply.
Residence
Workday Allocation Does Not Replace the Residence Analysis
Before employment income can be allocated under the treaty, it must be clear which country is the residence state under domestic law and, where necessary, Article 4 of the Germany–U.S. treaty.
Payroll & Wage Tax
Working in Both Countries Can Require Parallel Payroll Processes
German Wage Tax
German workdays may trigger German wage-tax and employer obligations depending on the employer structure and the employee’s tax status.
U.S. Federal Payroll
U.S. workdays may trigger federal wage withholding and other U.S. payroll obligations.
State Payroll
The specific U.S. work state may impose additional withholding, unemployment and employer-registration obligations.
Shadow Payroll
A shadow payroll may be needed even where salary continues to be paid only through the home-country payroll.
Common Patterns
The Practical Result Depends Heavily on the Employment Model
German Residence, Regular U.S. Travel
Germany often remains the main tax country, while U.S. workdays can create U.S.-source and potentially state-tax consequences.
U.S. Residence, Regular German Workdays
U.S. taxation may coincide with German limited tax liability for services physically performed in Germany.
Alternating Remote Work
Regular switching between home offices in Germany and the United States requires especially careful workday, payroll and social-security coordination.
Documentation
A Reliable Workday Calendar Is the Foundation
Date
Record each calendar day clearly.
Country & State
Record Germany, the relevant U.S. state or a third country.
Type of Day
Identify workday, vacation, weekend, sick day or travel day.
Activity
For borderline days, note what business activity was actually performed.
Travel Evidence
Retain flights, hotels, calendars, card records and other travel evidence.
Payroll
Coordinate the allocation with German and U.S. payroll.
Bonus & Equity
Track grant, vesting and earning periods separately.
Social Security
Retain Certificates of Coverage and assignment documentation.
State Tracking
Track U.S. workdays by state as well as by country.
The Other Side of the Case
U.S. Perspective
Employment & Social Security From the U.S. Side
Taxrep.us covers U.S. payroll, federal and state tax, Social Security and employer risks for the relevant cross-border employment structure.
Related Topics
More Germany–U.S. Employment Topics
Germany–U.S. Tax Advice
Do You Regularly Work in Both Germany and the United States?
We coordinate workday allocation, German and U.S. taxation, payroll, social security and the required tax filings in both countries.
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Social Security
Splitting Employment Income Does Not Automatically Mean Contributions in Both Countries
The Germany–U.S. Social Security Agreement is designed to prevent dual coverage and generally assigns the employment relationship to one social-security system.
Where an individual regularly works in both countries, the specific employment structure must be reviewed. A classic temporary assignment is different from permanent alternating work.