German PhD Student doing a Paid internship in USA for 3 Months. How to handle the taxes?

Question

I am doing my PhD in Germany and get paid by the university. This autumn I am going to the USA (Massachusetts) for an internship at a software company. For those 3 months my salary from the university is paused and I get paid from the software company.

I am not sure how to handle taxes and social insurences for this time period. I've read that there are some bilateral arangements between USA and Germany, but I am also confused if they apply for my case. In the end I prefer to pay to the german system as I am going to live there.

• Do I need an US bank account to recieve my salary, or does a german bank account also work?
• Can I pay the taxes in Germany myself from the salary, both employer and employee share? (That's the how the software company intends it to do, the salary is higher on purpose to account for that.)
• Do I need USA insurances in any kind for that period or can I just keep the german ones running?

Answer 1

Do I need a bank account in the USA to recieve my salary?

Probably. Ask your employer, but it is very uncommon for American software companies to pay in cash.

Can I pay the taxes in Germany myself from the salary, both employer and employee share? (That's the how the software company intends it to do, the salary is higher on purpose to account for that.)

Which taxes? You'll need to figure out whether you are supposed to pay US taxes (probably, unless you can find a tax treaty provision that exempts you), and if you are - on what status. Some statuses exempt you from the US payroll taxes (FICA/Medicare), some don't. The income tax and the social security tax are covered by different tax treaties, so you'll need to check both. If neither your employer nor your university provide any guidance or assistance, you'll need to find a CPA/EA who's proficient in the German-US treaties to advise you.

Oh, and don't forget the State. In the US, States levy their own income tax, and some don't adhere to the Federal tax treaties. So if your internship is, for example, in California - you'll pay CA income tax for your internship earnings. In some States (notably, New York), you also have cities which levy their own income taxes (New York City is notorious for this).

After all this, you'll need a German tax accountant to advise you how to report all your income, and taxes you paid in the US, in Germany, and what additional taxes you need to pay there.

Do I need USA insurances in any kind for that period or can I just keep the german ones running?

In the US, health insurance is usually sponsored by the employer. So you'll need to confirm with your employer what insurances they provide (it would probably be a condition for your visa, so you have to have that).

Answer 2

The United States Tax Authority (IRS) refers to your situation as a nonresident alien. Unfortunately, the tax treaties between the USA and European nations do not mean that you get to choose where to pay tax- the USA still wants to get revenue from foreign workers. Normally, the responsibility for withholding taxes falls on the employer. However, in the situation you describe it sounds like they will be treating you as an independent contractor, which means that you are responsible for paying all of the relevant taxes. What the tax treaty represents is once you've paid applicable taxes to the IRS, you will not be double-taxed on that same income from Germany.