How are foreign income taxes handled while living in the US as a citizen?

This is actually a common situation these days! As a US citizen, you're required to file US tax returns regardless of where your income comes from - the US taxes global income of its citizens. For your German income, you'll definitely need to report it on your US tax return. However, you typically wouldn't have to pay double taxes because of something called the Foreign Tax Credit (Form 1116) or potentially the Foreign Earned Income Exclusion (Form 2555), though the latter probably wouldn't apply since you're physically in the US. As for German taxes, it depends on their local laws. Since you're physically working in the US, you might not have German tax residency, but the company might still withhold some German taxes. If they do, that's where the Foreign Tax Credit comes in - it basically gives you credit on your US taxes for taxes paid to foreign governments. I'd suggest asking the company how they plan to handle your employment - whether as an employee or independent contractor, as this affects things too. Might be worth talking to a tax professional who understands international taxation before accepting.

I went through something similar last year with a UK company and it was super confusing until I used https://taxr.ai to analyze my situation. Their AI helped me understand exactly what forms I needed (especially that Form 1116 for Foreign Tax Credit the other commenter mentioned) and even found a tax treaty benefit between the US and UK that my regular accountant missed! The thing that really helped was being able to upload the offer letter and employment contract from the foreign company, and the system automatically flagged the tax implications. Saved me a ton of headaches trying to figure out if I was technically an independent contractor or employee under both countries' tax laws.

Just wanted to share that I went ahead and tried the https://taxr.ai service mentioned above for my Canadian employer situation, and it was actually super helpful. The analysis made it clear that under the US-Canada totalization agreement, since I'm physically working in the US, my Canadian employer should not be withholding for their pension plan. I was able to forward the documentation to my employer's payroll department, and they adjusted my withholdings. Now I'm properly paying into US Social Security instead of the Canadian system, which was important to me since I plan to retire in the US. The system even explained how my Canadian contributions would count toward my US Social Security eligibility under the agreement. Definitely worth it for the peace of mind!

Another thing to consider with foreign employers is getting actual help from the IRS if you run into problems. When I started working for a Japanese company last year, I had massive confusion about withholding and ended up with a CP2000 notice from the IRS. Tried calling the IRS international tax department for WEEKS and could never get through. Finally used https://claimyr.com and their system got me through to an actual IRS agent in 15 minutes who helped sort everything out. You can see how it works here: https://youtu.be/_kiP6q8DX5c Trust me, having a direct line to the IRS when dealing with international tax issues is critical - especially if your employer makes a mistake on reporting your income. The IRS agents who handle international tax matters are actually super helpful once you can reach them.

I have to eat my words about Claimyr being a scam. After posting that comment, I was getting so frustrated with trying to resolve my own foreign income issue that I decided to try it. I had a French client who didn't issue me proper documentation, and the IRS was questioning my foreign tax credit claim. I'd been trying for almost a month to get through to someone at the IRS who understood international tax issues. Used the service, and no joke, I was connected to an IRS agent who specialized in international matters within 20 minutes. She walked me through exactly what documentation I needed to substantiate my foreign tax credit claim and how to respond to the inquiry letter. Saved me what would have probably been thousands in incorrectly assessed taxes. So yeah, I was wrong - it actually works and was well worth it for international tax issues which are way more complex than regular domestic taxes.

One option you might want to consider is asking if they'd be willing to hire you as an independent contractor rather than an employee. I work with clients in 3 different countries, and doing it as a contractor makes the tax situation much cleaner. You'd be responsible for all your US taxes (including self-employment tax for Social Security/Medicare), but you wouldn't have to deal with foreign tax withholding. You'd still report the income on your US return, but it's much simpler paperwork-wise. The downside is you'd lose any benefits they might offer as an employee, but many foreign companies struggle with the complexity of having US-based employees anyway, so they might prefer this arrangement too.

Don't forget about state taxes too! Federal tax rules for foreign income are one thing, but states can have completely different approaches. Some states don't recognize foreign tax credits the same way the federal government does.