Germany–U.S. Assignment
Assignment From Germany to the United States
A temporary assignment of an employee by a German employer to the United States can trigger U.S. income-tax, payroll and state-tax obligations even though the German employment relationship and German payroll continue. At the same time, German tax and social-security obligations may remain in place.
Temporary Work in the United States
An Assignment Is Not the Same as a Permanent Relocation
In a typical assignment, the employee remains employed by the German company and works in the United States for a limited period. Even so, U.S. income tax, payroll and state-tax obligations can arise in the work country.
On the German side, it must be determined whether the employee remains subject to unlimited German tax liability, whether treaty residence lies in Germany or the United States and how employment income should be allocated between the two countries.
For social security, the key question is whether the Germany–U.S. Social Security Agreement allows German coverage to continue during the assignment.
Assignment Structure
The Legal and Economic Structure Must Match the Tax Treatment
German Home Employer
The German company may remain the legal employer. Duties, reporting lines, duration and cost allocation should be clearly documented.
U.S. Host Company
A U.S. group company may direct the employee or bear assignment costs. This can affect treaty, payroll, transfer-pricing and employer questions.
Expected Return to Germany
A clearly limited assignment with a planned return is especially relevant for social security, although tax residence still depends on the actual facts.
Income Tax
German and U.S. Tax Obligations Can Coexist During the Assignment
German Residence May Continue
If the employee retains a dwelling in Germany that remains available during the assignment, unlimited German tax liability may continue. Temporary absence alone does not automatically end German residence.
German Residence After Moving AbroadWork Performed in the United States
Compensation for services physically performed in the United States may generally be taxable there. It must also be determined whether and when U.S. tax residency begins.
Employment Income Under the TreatyGermany–U.S. Tax Treaty
The 183-Day Rule Is Only One Possible Exception
Work-State Principle
Employment income may generally be taxed in the country where the services are physically performed.
183-Day Exception
Under certain conditions, taxing rights may remain with the residence country. Presence, employer status and cost bearing must be reviewed together.
U.S. Host & Cost Recharge
If a U.S. company economically bears compensation or assignment costs are recharged, the treaty exception may be affected.
Payroll & Compensation
German Payroll May Continue While U.S. Payroll Is Added
German Payroll
Salary may continue to be paid from Germany. Whether German wage tax should be withheld depends on German tax liability and treaty allocation.
U.S. Federal Withholding
Services performed in the United States may trigger U.S. federal wage withholding and related employer obligations.
State Payroll
The relevant U.S. state may impose additional withholding, employer registration and unemployment-insurance obligations.
Shadow Payroll
A U.S. shadow payroll may be useful or required while the actual cash payment remains on German payroll.
Assignment Benefits
Assignment Benefits Need Coordinated Treatment in Both Countries
Housing & Relocation
Housing allowances, relocation costs and similar benefits can be treated differently for German and U.S. tax and payroll purposes.
Schooling & Home Leave
School fees, home-leave travel and family-related benefits should be reviewed for taxability and payroll treatment.
Tax Equalization
Tax-equalization or tax-protection policies should clearly address hypothetical tax, actual tax, refunds and excess tax costs.
Assignment Duration
The Five-Year Rule Is Central for Social Security — Not for Income Tax
Social Security
For a qualifying assignment, the agreement can generally allow German social-security coverage to continue for a temporary U.S. assignment of up to five years.
Income Tax
Income-tax treatment instead follows treaty rules, residence, workdays and U.S. tax-residency rules. The five-year social-security period is not an income-tax exemption.
U.S. Employer Risk
The Assignment Can Also Create U.S. Tax Exposure for the German Company
U.S. Trade or Business
The assignee’s activities may require an analysis of whether the German company is engaged in a U.S. trade or business.
Permanent Establishment
The treaty may limit U.S. federal corporate taxation, but fixed-place activities, host-company arrangements and employee functions still require review.
State Nexus
U.S. states are not necessarily bound by treaty limitations. An assignee may create state payroll, income/franchise tax and registration obligations.
Transfer Pricing & Cost Recharge
Who economically bears compensation and assignment costs can be relevant both to treaty employment taxation and to the corporate-tax analysis.
Checklist
Review These Points Before the Assignment Begins
Assignment Agreement
Document duration, duties, employer, reporting lines and return plans.
Residence
Review the German home, U.S. accommodation and potential dual residence.
U.S. Status
Clarify visa status and the expected start of any U.S. tax residency.
State
Identify the primary work state and any additional business travel by state.
Payroll
Coordinate German payroll, U.S. shadow payroll and withholding.
Social Security
Apply for D/USA 101 in time and document coverage.
Benefits
Capture housing, relocation, schooling, travel, bonus and equity compensation.
Tax Equalization
Define hypothetical tax, actual tax and refund treatment contractually.
Employer Risk
Analyze federal PE/USTB, state nexus and cost recharge separately.
The Other Side of the Case
U.S. Perspective
German Assignment to the United States
The corresponding taxrep.us page addresses the same assignment from the U.S. perspective: federal and state payroll, U.S. tax residency, Social Security, assignment benefits and employer risks.
Related Topics
More Germany–U.S. Employment Topics
Germany–U.S. Tax Advice
Planning an Assignment From Germany to the United States?
We coordinate German and U.S. tax, payroll, social security, D/USA 101, assignment benefits and the related federal, state and employer risks.
Schedule an Initial Consultation
Germany–U.S. Social Security
A Qualifying Assignment May Preserve German Social-Security Coverage
The Germany–U.S. Social Security Agreement can allow an employee on a temporary assignment to remain covered by the German system and avoid parallel U.S. Social Security contributions.
The applicable coverage is documented through the relevant certificate, including D/USA 101.