How do I avoid getting double taxed by Germany and USA (for USA source dividends from Stock and bond mutual funds)

Forum|Forum|3 years ago
March 17, 2023
1 reply
4 views

Hello,

I have been trying to read and understand how I should go about this issue to prevent paying taxes for USA source dividends both in Germany and then USA (i.e getting taxed twice for the same dividends).

We are US citizens, and moved in 2022 to Germany (one spouse in June, other in October, 2022), both are now German tax residents (as we moved with intention to live there for longer than 6 months, actually more than that).

Our main source of income is passive from dividends from stock and bond mutual funds held at a brokerage in USA. Being a US citizen there is no withholding tax on the dividends. We are currently preparing to file Taxes first in Germany and then in USA.

I would like help with a few issues:

1) I realize Germany will tax us 26.375% on these dividends (since I cannot claim that I have already paid taxes on this income in USA, since as a US citizen there is no tax withholding). Per US/Germany tax treaty, USA also reserve the right to tax 15% on the US source dividends. How do I go about filing tax returns both in Germany and USA so I don't have to pay in taxes on the same dividends in both countries. I would also want to avoid paying taxes in both countries and then filing again an amendment to get the taxes partially refunded.

2) Our second issue unique to us is that we are not just partial year tax residents in both countries, but we (spouses) moved in different months. We have received a combined 1099-DIV for the year which only shows the total dividends for the entire year, I understand that I am liable for full tax on these dividends in US (for the partial year we lived here) and liable for taxes in Germany for the partial year we lived there (how do I report the US part and German partial year on Turbotax dividends income section).

I would really appreciate some expert advice and if someone has actually done this partial year taxation for US/Germany.

Thanks for reading.

Best answer by ErnieS0

You will report dividends on your U.S. tax return as normal. This is how the U.S. will get its share of tax. However, by claiming a foreign tax credit, you’ll effectively only pay tax to the U.S. on the portion of U.S. tax that is higher than the German tax, if that’s the case.

If you kept your investments in a U.S. financial institution, you will receive a Form 1099-DIV. If you moved your money to a German financial house, report the amounts in USD as if you received a 1099-DIV.

See How to report foreign income and dividends.

I believe the treaty provisions you refer to deal with withholding, not actual tax paid.

See Germany - Tax Treaty Documents

ErnieS0

Level 15

U.S. citizens are taxed on worldwide income, so you’ll file the same way you always have when you lived in the U.S.

The IRS has no part-year tax status for U.S. citizens. If you lived in a state with an income tax, you can file a part-year state return and report only the income you received while living in that state.

Because all your income is taxed by the U.S., you can claim a foreign tax credit on dividend income double-taxed by Germany.

Type foreign tax credit in Search (magnifying glass) in the upper right corner
Select Jump to foreign tax credit
Complete the screens to claim either the credit or deduction

For more help: Where do I enter the foreign tax credit (Form 1116) or deduction?

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

skaufmannAuthor

Level 2

@ErnieS0

Thanks Ernie for your time and response, I appreciate it very much.

I am still unclear about one thing: If I pay taxes in Germany first on my dividends, they will tax me 26% (since there was no withholding as a US citizen). Then If I file in USA and claim the taxes paid as FTC, where will USA get its share of taxes on the dividends (I believe the US/Germay tax treaty give USA right to tax upto 15% tax on dividends).

If you have a moment, can you clarify that.

Once again, thanks for your help.