Foreign military service and paying taxes

Dreams65 · Mar 20, 2021

Two of my sons and my son-in-law are in the military...the German military. All three of my kids, two sons and a daughter, have American/German dual citizenships. None of them have ever lived in America, but along with their German passports they all have American passports and social security cards/numbers. My oldest son, who is in the German Air Force, is deployed through NATO to the United States (six year tour). After getting settled in with his wife and kids, he contacted a local accountant to find out if he had to pay any American taxes while working for NATO as a foreign citizen.

Over a number of weeks he contacted several accountants and strangely enough, not one of them had any idea what he was supposed to do. Apparently they had never encountered a situation where an American with dual citizenship was serving in a foreign military and didn't know what to tell him. My son went to a German military accountant, who is deployed at the same base as he is, and he didn't know what to tell him either. So he contacted the IRS, and they couldn't help him. The catch is, because he gets his pay checks from the German military, he is paying taxes back to the German government. His deployment orders originated in the German military, but were taken over by NATO as soon as he deployed to the United States. NATO is subsidizing his German military check with an additional salary because he is deployed to America. Somehow that throws a wrench into any advice accountants, including the IRS, can give him. He didn't want to get into any trouble, but he also didn't want to pay taxes twice...so better to be informed than to have the IRS knocking on his door later.

He also had problems getting a NATO military ID at the American military base where he is deployed. The lady issuing the IDs didn't know what to do. They decided that it wasn't legal in the U.S. to issue an American citizen a foreign service ID without stating on the ID that he was also an American, so they had to create a new, unique ID just for him.

It's kind of weird and unexpected that no one has encountered this situation before. All the agencies that my son contacted were baffled.

Phronema · Mar 20, 2021

I'd say he should contact his legal section/office as that should be spelled out in a SOFA (Status of Forces Agreement) between the two countries. As for paying taxes twice I'd say the answer is definitely not. He's deployed to the US as part of the German military, and would be (or should be) subject to the same rules as any other NATO member, and German military / civil law would apply. Ultimately he wouldn't owe the US anything in taxes as he's operating in the capacity of a German citizen regardless of whether he has dual citizenship, or not.

I'm not sure how it works in the Luftwaffe, but that's how it works when the US military stations it's men, and women to Europe, and elsewhere. I'm currently serving, and have 17 years of active duty in the USAF. That said I'm not legal, or finance, etc. But I'd head to the legal office, and found out how the SOFA is spelled out. I'm quite sure the US, and Germany have one, and it should mention that. Otherwise the Luftwaffe, or German government would be the one to set how it works for their men, and women.

If Legal doesn't know he'd need to contact his Finance personnel. If they don't know I'd not worry about it as the US wouldn't expect him to pay taxes here as he's not filing taxes to the IRS/US since he's not being paid by the US government.

Arcangl86 · Mar 20, 2021

Phronema said:
I'd say he should contact his legal section/office as that should be spelled out in a SOFA (Status of Forces Agreement) between the two countries. As for paying taxes twice I'd say the answer is definitely not. He's deployed to the US as part of the German military, and would be (or should be) subject to the same rules as any other NATO member, and German military / civil law would apply. Ultimately he wouldn't owe the US anything in taxes as he's operating in the capacity of a German citizen regardless of whether he has dual citizenship, or not.

I'm not sure how it works in the Luftwaffe, but that's how it works when the US military stations it's men, and women to Europe, and elsewhere. I'm currently serving, and have 17 years of active duty in the USAF. That said I'm not legal, or finance, etc. But I'd head to the legal office, and found out how the SOFA is spelled out. I'm quite sure the US, and Germany have one, and it should mention that. Otherwise the Luftwaffe, or German government would be the one to set how it works for their men, and women.

If Legal doesn't know he'd need to contact his Finance personnel. If they don't know I'd not worry about it as the US wouldn't expect him to pay taxes here as he's not filing taxes to the IRS/US since he's not being paid by the US government.

It's worth pointing out though that the US is fairly unique in that it requires all US citizens to pay income tax, even on income earned abroad, which is another layer of complication.

Silverback · Mar 20, 2021

Check the status of forces agreement between Germany and the United States.

I expect it will say German military personnel will pay German taxes, and the US military personnel will pay US tax.

The SOFA covers them while in the United States, that should be the end of it.

However, having dual citizenship could make the situation more complicated, since the US taxes foreign income after a certain amount is earned...which differs from country to country.

Additionally, even if your income is below the taxable income level, you still have to file a return, which declares your income, this is a complex procedure, which usually involves a tax attorney, or an accountant that specializes in this.

If it were me, I would email the IRS, explaine the situation, if you get a "I don't know response" take a screenshot shot, file it away, and move forward, IMHO, you have done your due diligence.

Enjoy your stay in the US.

Dreams65 · Mar 20, 2021

Arcangl86 said:
It's worth pointing out though that the US is fairly unique in that it requires all US citizens to pay income tax, even on income earned abroad, which is another layer of complication.

This was my concern. The last time I checked, any amount over $70,000 earned in a year abroad is subject to being taxed. Of course there are loopholes, but generally that's the amount. With the extra salary NATO is paying him, he makes more than that amount (but he is not abroad and is deployed to the U.S.).

He did go to a German military accountant and even though they couldn't give him a direct answer to his concerns, they did tell him not to worry about it. I think he wanted something confirmed on paper, just to cover himself if anything were to come up later on. But as Phronema also said, he probably doesn't have anything to worry about.

Phronema · Mar 21, 2021

Arcangl86 said:
It's worth pointing out though that the US is fairly unique in that it requires all US citizens to pay income tax, even on income earned abroad, which is another layer of complication.

While that is true in some situations for some people he's not receiving income from any US source(s), and he's not currently living in the US while exercising US citizen status as he's been deployed here by another country serving in their military, and so wouldn't owe the IRS anything at all.

Technically as a US citizen he still *should* file I'd think since he's a citizen, but he'd have zero earned income as far as the US is concerned, and he'd owe nothing. I'm quite sure there are specific rules out there for dual citizens that outline what is/isn't required.

For more information : Taxation of Dual-Status Aliens | Internal Revenue Service

NinjaPirate777 · Nov 23, 2022

The US recently hired 87,000 new IRS agents. Tell your kids not to worry about paying taxes. They'll be contacted soon enough once the tax collector army is up to speed.

Arcangl86 · Nov 23, 2022

NinjaPirate777 said:
The US recently hired 87,000 new IRS agents. Tell your kids not to worry about paying taxes. They'll be contacted soon enough once the tax collector army is up to speed.

Nope. The IRS was authorized to hire 87000 new employees over the next 10 years. In that same time period they are expected to loose over 50000 current employees. Combine that with the 23000 that have left the agency since 2010, that results in a net increase of 14000 employees, not all of them auditors. That works out to be only 10% higher then it was 12 years ago, and the population and the workload of the IRS are both significantly higher, and will be higher still by the end of the 10 period the yare authorized to hire new folk.

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Foreign military service and paying taxes

Dreams65

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Phronema

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Arcangl86

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Silverback

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Dreams65

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Phronema

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NinjaPirate777

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Arcangl86

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