Thank you for the question
As a U.S. Citizen and resident of Michigan he is taxed on world wide income.
However, with respect to Germany and the U.S.:
After he has lived and worked abroad for 330 days in any 12 month period, he is entilted to a foreign income exclusion of 87,600 dollars. He can extend his filing date to meet the 12 month condition.
He has to file the federal return in order to figure and take the credit.
he is also required to file a Michingan return as either a part year resident or non-resident. Michigan does not honor tax treaties.
With regard to the tax treaty between the U.s. and Germany. He pays taxes on his german income first to Germany. He then files his u.s. claiming his income and figuring the exclusion. His salary and benefits, inlcuding housing are taxable in the u.s., but the U.S. will give a tax credit for any taxes paid to Germany.
The exclusion means that he does not pay U.S. income taxes on the first 87,600 dollars.
It is impossible for us to figure his tax here anyway close to accurate. this is because we can not accurately predict in this venue, his german salary and work out the equalization.
this process takes several hours.
My clients pay me about 750 dollars to do this kind of estimate in my business.(and I am cheap...Price Waterhouse Coopers charges 1250 for the same kind of equalization estimate)
But I can give you an offhanded view of what it might look like:
German Payroll, tentatively would look something like this:
Now this may not be accurate because we do no tknow if he is paying the germany social secuirty taxes or taking advantage of the totalization agreement between teh u.S. an dGermany, and opting out so that the team is paying his U.S. Social Security Taxes.
So from this workup, we can see that he may be expected to pay 47,178 Euros in total taxes to germany.
On the U.S. Side:
we take the 224,000 and we are going to just take off the foreign income exclusion at the beginning to make it simple. This assumes he meets the criteria of 330 days in any 12 month period, including extensions to meet the requirement:
Income reported to the U.S.136,400.
- standard deduction 5400
NOTE: his total Federal tax would not be greater than that.
Michigan: Michingan DOES allow the Federal Foreing Income Exclusion
Adjusted income Not more than 128,617
Taxable income not more than 125,217
Total tax: Not more than 5,021.
So Federal, State and German Taxes combined would be not more than:
AGain, this is a not more than figure. Unless I kow exactly how his german payroll will look, it will be impossible to figure this tax any more exactly.
It would be well worth the price, to have Price Water House or KPMG, prepare his taxes for him.
My recommendation is also for him to preparer a travel calander and trakc his expenses related to travel days for the team. He will be alb to further reduce his tax, based on taking such deductions as travel expenses, and relocation expenses.
Also part of the reason the German taxes look way hugh, is because you said his income was in dollars. I had to convert the EU Tax currency to dollars. As you know the dollars are taking beating overseas. The conversion factor affects the tax. If the dollar's position improves, this figure will get smaller.
ALSO, He might renegotaite his contract iwth the Germans to provid tax equalzation so that he does not pay more overall tax than he would had if he had remained in the U.S.
The German's do not like to do that, but it does not hurt to ask.