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Issues of what country taxes income and how income is taxed between countries, is determined by tax treaty. The US-German tax treaty treats social security income earned from one country to a resident or citizen of the other country, as social security income from the resident country. This means that your wife will treat her German social security income as US social security income.
For entering the income in your tax software, you should combine the amount reported on your wife's SSA-1099 with the USD amount of German social security income. Enter the combined figure in the software's SSA-1099 box for gross social security benefits.
If there are additional questions or concerns, please reply to this answer so that I may assist you further. If this answers your question, please rate my performance between OK and Excellent so that I may receive credit for my work. Thanks for your business. Source: http://www.irs.gov/pub/irs-trty/germany.pdf (Article 19: Government Service: Social Security)