How can I compare my current tax exempt salary and benefits to job offers back in the States?

Question

I am trying to find out a way to compare my current NET income to what I could potentially NET back home. All of the salary comparison websites do not accurately calculate my tax exemption status and cost of living (lower) here in Germany.

My guess is that I'll need to almost double my salary as I'm not paying most taxes here in Germany. Here's some more info about my situation.

1. Income tax exemption - I don't pay US or German income taxes. I'm exempt from both. I'm not paying US state income taxes either. This probably saves me at least 30% every year.

2. Sales taxes - I only pay sales taxes when I eat at a restaurant or shop for groceries on the economy (a german grocery store). I mostly shop at the commissary on base...and they sell everything at cost...you can't get groceries cheaper anywhere else. All other goods (utilities, clothing, cars, electronics, etc) are tax exempt. I prepay for gasoline (current US national average price without sales tax).

Any suggestions?

I'm not a GS employee (civil servant) or in the military. I work for a private contractor. I file the 2555 with my 1040 every year. My taxable income is just below the allowed amount.

I am paying Social Security and Medicare.

I also have 3 dependents. My wife also works for a private contractor and is tax exempt.

I file EXEMPT on my W4. That way taxes are not taken from my paycheck. That's what we call exempt status here. Call it what you want. We're given a 3 month extension to file for being overseas.

Answer 1

I am assuming that since your income is exempt, you ARE NOT an employee of the US Government, and are therefore entitled to the Foreign Earned Income Exemption (FEIE) of up to $82,400 (as of 2006). I am also assuming that you are not receiving any housing allowance and that you are not subject to SS and Medicare Tax. Finally, I am assuming that your income would equal your adjusted gross income (i.e., no adjustments to income and no tax credits).

Under this set of assumptions, if you are earning $82,400 of exempt income, an equivalent taxable income would be roughly $114,000. Note that this amount does not take into consideration state income taxes as you did not indicate in what state you would be residing. Also excluded is the impact of sales taxes since they are a function of your level of consumption.

The calculation is rather convoluted and I am not aware of any readily available salary conversion sites. This is probably due in part to the many variables that would come into play.

For your information, that $114,000 salary would roughly break down as follows:

$114,000
- 6,045 SS Tax at 6.2% of the first $97,500
- 1,653 Medicare Tax at 1.45%
- 23,857 Federal Tax (assuming 1 exemption and std. deduction)
$ 82,445

Answer 2

Sorry, but your salary earned as an employee of the US Government stationed in Germany is NOT tax exempt in the US! It may be covered by the SOFA and not taxed in Germany, but it damn sure IS taxable in the US! If you haven't been paying taxes on that income, you are in for a VERY rude surprise one day!

Addendum: OK, you are able to exclude the income from taxation using the FEIE. It's NOT exempt, however. File a return one day late and you'll learn that lesson the hard way.

You can go here for some handy tax estimators: http://www.paycheckcity.com and "slice and dice" the numbers to figure out about how much you'd need to earn in order to arrive at a similar take-home pay.

Don't forget to take into consideration the local cost of living where you plan on settling. $80k a year will carry you a long way in Joplin, MO, but you'll be living paycheck to paycheck in NYC, Boston or San Francisco on the same income.