Germany and a US Annuity: Only a Slice Is Taxed, and the Slice Depends on Your Age
Written by Hans Goldstein, EA, licensed insurance agent · CA 4273294Admitted to practice before the IRS
Short answer: Germany taxes a privately bought life annuity on only a fixed share of each payment, set by your age when payments start: 21% at 62, 18% at 65 to 66, 15% at 69 to 70 (EStG section 22 no. 1 sentence 3 a) bb), checked 18 Oct 2026). The statute has no German-insurer test, and treaty Art. 18(2) gives Germany the sole right to tax while Art. 23(3) lets the US credit absorb the German tax (US-Germany treaty Art. 18(2), 23(3), checked 18 Oct 2026), so you pay about the higher of the two. On my $35,000 example at 65 the German taxable amount is about €5,607, German tax about $1,802 with €30,000 of other income, US tax $2,200, total $2,200; at 70 Germany ($1,488) beats the US ($825) and becomes the bill. Germany levies no wealth tax (PwC Tax Summaries Germany, checked 18 Oct 2026), and inheritance tax can reach a refund paid to a beneficiary.
Free guide: Moving abroad on a fixed income
Income rules and taxes by country: Norway, Switzerland, Sweden, Italy, Spain, Malta and more, plus how a lifetime annuity fits.
Germany is the cleanest of the three countries on this page, because the statute has a published table and a treaty rule that fits. The permit side is on my Germany residence permit page. Here is the tax: what the table says, whether it reaches a US insurer, and how the two countries fit together.
The Ertragsanteil table, in full for annuity ages
Section 22 no. 1 sentence 3 a) bb) of the Income Tax Act (EStG) covers life annuities that are not statutory or Basisrente pensions and whose payments contain "income from the yield of the annuity right". The yield is the difference between the yearly payment and the capital value spread evenly over the expected term, and it is read from the table by the age completed when payments start (EStG section 22 no. 1 sentence 3 a) bb), checked 18 Oct 2026). The share is then fixed for the whole payment period. The statute table begins at 59% for ages 0 to 1; these are the rows for ages 50 and up:
| Age when payments start (completed years) | Taxable share (Ertragsanteil) |
|---|---|
| 50 | 30% |
| 51 to 52 | 29% |
| 53 | 28% |
| 54 | 27% |
| 55 to 56 | 26% |
| 57 | 25% |
| 58 | 24% |
| 59 | 23% |
| 60 to 61 | 22% |
| 62 | 21% |
| 63 | 20% |
| 64 | 19% |
| 65 to 66 | 18% |
| 67 | 17% |
| 68 | 16% |
| 69 to 70 | 15% |
| 71 | 14% |
| 72 to 73 | 13% |
| 74 | 12% |
| 75 | 11% |
| 76 to 77 | 10% |
| 78 to 79 | 9% |
| 80 | 8% |
| 81 to 82 | 7% |
| 83 to 84 | 6% |
| 85 to 87 | 5% |
| 88 to 91 | 4% |
| 92 to 93 | 3% |
| 94 to 96 | 2% |
| 97 and over | 1% |
Does a US insurer qualify? The statute asks about the nature of the annuity, not the insurer's country, and I found no insurer-location test in the text. German commentary (Haufe) cites a 1998 tax-agency letter treating a private pension insurance annuity as Ertragsanteil income, but I found nothing specific about foreign insurers, and I did not locate the current ministry of finance letter. So I treat the foreign-insurer point as likely but not confirmed in writing. For a joint or survivor annuity the table age is the oldest annuitant if the annuity ends at the first death and the youngest if it ends at the last death; a fixed-term (short) annuity uses a different table (EStDV section 55, checked 18 Oct 2026). A refund or guarantee feature may change how an adviser classifies the contract.
The treaty: Germany taxes first, the US credits
Article 18(2) says annuities derived and beneficially owned by a resident of one country are taxable only in that country, but it defines annuities as a stated sum paid "during a specified number of years", with no mention of life (US-Germany treaty Art. 18(2), checked 18 Oct 2026). A life-only SPIA arguably fits poorly. If it does not, Art. 21 (Other Income) also gives sole taxing right to the residence country (US-Germany treaty Art. 21(1), checked 18 Oct 2026), so the result is the same either way. Article 23(3) covers a US citizen resident in Germany: Germany credits only US tax the treaty allows (nothing here), and the US credits German tax, with the income "deemed to arise in the Federal Republic of Germany to the extent necessary to avoid double taxation" (US-Germany treaty Art. 23(3)(a) to (c), checked 18 Oct 2026). That is the re-sourcing rule. The end result is the higher of the two bills.
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Estimates use the September 9, 2026 ImmediateAnnuities.com payout survey (life only) and a 15% cushion. Illustrative, not a quote.
German income tax on the taxable share
The share is taxed at the ordinary tariff: from 2026 the first €12,348 is tax-free (Grundfreibetrag) and the rate climbs to 42% above €69,878 and 45% above €277,825 (EStG section 32a, 2026 tariff, checked 18 Oct 2026). A flat €102 deduction is allowed for income of this type (EStG section 9a no. 3, checked 18 Oct 2026). The solidarity surcharge is 5.5% of income tax but is largely phased out, and church tax is 8% or 9% of income tax; the PwC page shows 2025 thresholds, so I did not verify the 2026 surcharge threshold (PwC Tax Summaries Germany, reviewed 30 Jun 2026, checked 18 Oct 2026). Health-insurance contributions on a private annuity are a separate topic I did not verify.
Deferred annuities, DIAs and MYGAs
A DIA is the same as a SPIA once payments start: the same rules apply to each check. Before the first payment there is no annuity income, but wealth-tax and reporting questions can already apply to the contract. A deferred annuity or MYGA that you annuitize for life is then in the same Ertragsanteil category. If you instead take a lump sum or surrender, the gain is capital income under section 20(1) no. 6, and half of it is taxed if the payout comes after age 60 and 12 years from the start of the contract; the section also says this rule applies "insofar as lifelong annuity payment is not chosen and made" (EStG section 20(1) no. 6, checked 18 Oct 2026). I did not verify whether a US MYGA counts as a Rentenversicherung under that section or as something else, so I give no number for MYGA gains. Choose lump sum versus lifetime payments with the German adviser first.
Wealth tax, inheritance tax and exit tax
Germany levies no wealth tax at present (PwC Tax Summaries Germany, other taxes, checked 18 Oct 2026). I did not verify a German departure tax and I do not rely on one for annuities.
Return of premium and inheritance tax
A refund feature cuts the check by about 5% in my model and pays a death benefit. In Germany any financial benefit a third person acquires directly on the death of the policyholder under a contract the deceased made counts as acquisition on death (ErbStG section 3(1) no. 4, checked 18 Oct 2026), so a refund paid to a beneficiary is within inheritance tax. When the deceased or the heir lives in Germany, tax applies to the whole acquisition (ErbStG section 2(1) no. 1, checked 18 Oct 2026). The allowances are €500,000 for a spouse and €400,000 for a child (ErbStG section 16(1), checked 18 Oct 2026); in tax class I the rates run from 7% up to €75,000 to 30% above €26 million (ErbStG section 19(1), checked 18 Oct 2026). So for most families a modest refund is below the allowances. Whether Germany treats a refund as a return of capital for income tax: not settled. On the US side, IRC 72(c)(2) subtracts the refund value before the exclusion ratio is set (IRC 72(c)(2), checked 18 Oct 2026).
The dollar
The annuity pays US dollars; your bills are in euros. Over the 20 years to October 2026 the euro ranged from 0.62 to 1.04 per US dollar (low on 22 Apr 2008, high on 27 Sep 2022), and on 9 Oct 2026 it was 0.89 (Federal Reserve H.10 via FRED, series DEXUSEU, inverted, checked 18 Oct 2026). On a $35,000 check that is about €21,700 at 0.62, €31,150 at 0.89 and €36,400 at 1.04. I do not predict where it goes. A natural hedge is a home or other assets in euros that offset the dollar income, with the annuity as the income floor.
Worked example: $500,000 SPIA at 65
The US side is the same in every country. As a US citizen you still file a US return. For a non-qualified life-only annuity the IRS excludes the part of each check that is your own premium coming back: the exclusion ratio is your investment in the contract divided by the expected return (IRC 72(b)(1), checked 18 Oct 2026). The expected return is the yearly payment times the Table V multiple for your age, which is 20.0 at age 65 and 16.0 at age 70 (IRS Publication 939, Table V, checked 18 Oct 2026). The exclusion stops once you have recovered your premium, and after that every dollar is taxable (IRC 72(b)(2), checked 18 Oct 2026). If the contract has a refund feature, the value of the refund is subtracted first, which lowers the excluded share (IRC 72(c)(2), checked 18 Oct 2026).
Assumptions, all of them mine: a US citizen starts at 65 with a $500,000 non-qualified life-only SPIA. Illustrative payout 7.0%, so $35,000 a year (illustrative, not a quote). Expected return $35,000 times 20.0 = $700,000, so the exclusion ratio is $500,000 / $700,000 = 71.4%: $25,000 a year is excluded and $10,000 is taxable until the $500,000 is recovered, about year 20; after that the full $35,000 is taxable. US tax on the $10,000 gain share at an assumed 22% federal bracket is $2,200; the 2026 22% bracket for a single filer runs from $50,400 to $105,700 of taxable income (IRS Rev. Proc. 2025-32, Table 3, checked 18 Oct 2026). I use EUR 0.89 per US dollar, so the check is about €31,150. I assume no other income unless I say so, and no deductions.
Germany at 65: 18% of €31,150 is €5,607; less the €102 deduction, €5,505 is taxable. I assume €30,000 of other German taxable income (Social Security or other pensions) so the share sits on top: the 2026 tariff gives €4,217 on €30,000 and €5,821 on €35,505, so the extra German tax is €1,604, or $1,802 at 0.89 (about 29% on the margin). With no other income the €5,505 is below the €12,348 allowance and German income tax is zero. I ignore the solidarity surcharge and church tax. Age 70: 15% of €31,150 is €4,672.50; less €102 is €4,570.50; extra tax €1,324, or $1,488.
| Illustrative, not a quote | Germany taxable share | German tax (with €30,000 other income) | US tax (22% on gain share) | US credit for German tax (Art. 23(3)) | Total paid |
|---|---|---|---|---|---|
| $35,000 check, start at 65 | 18% | $1,802 | $2,200 | -$1,802 | $2,200 (US is the higher) |
| Same, start at 70 (Table V 16.0; US gain $3,750) | 15% | $1,488 | $825 | -$825 | $1,488 (Germany is the higher) |
| Start at 65, no other German income | 18% | $0 | $2,200 | $0 | $2,200 |
Why age matters: Germany's share falls slowly with age (21% at 62, 15% at 70) while the US gain share falls fast, since the Table V multiple shrinks and more of each check is returned premium (28.6% of the check at 65, 10.7% at 70). So at older starts Germany tends to become the binding tax. The 70 line holds the $35,000 flat for comparison; a real payout at 70 would be higher.
What changes with other products: a MYGA has no check stream until you annuitize. A DIA behaves like the SPIA once it pays, with the table age taken when payments start, not when you bought.
How to use this
I am a US-licensed insurance agent and an Enrolled Agent, admitted to practice before the IRS. I can only help with a US annuity while you still live in the US, and I do not give foreign tax advice. Before you buy, get a written view from a local adviser who has seen your actual contract, and keep it with your papers. The sources are listed below.
This is education, not tax advice. Rules change; every rate here carries its source and the date I checked it.
Married? Make the income outlive either of you. In Germany spouses may add their incomes together, so two smaller annuities, one on each spouse, can work as well as one larger one. If a single-life annuity is on one spouse and that spouse dies first, the payments stop, and the surviving spouse may have to show income of their own at the next renewal. A joint and survivor annuity, which keeps paying until the second death, or a separate annuity on each spouse closes that gap. Joint and survivor pays less per dollar than single life, so ask for both quotes and compare.
Frequently asked questions
Related reading
- Moving abroad on a fixed income: the hub
- Where a US annuity is tax-smart abroad
- How Europe taxes a US annuity
- Germany residence permit: the income rules
- Countries with a wealth tax and whether an annuity helps
- Why a US annuity is tax-favored: the exclusion ratio
- Italy: US annuity tax for a retiree
- Cyprus: US annuity tax for a retiree
- Spain: US annuity tax for a retiree
Sources
- US-Germany income tax treaty, IRS text (Arts. 18, 21, 23)
- Gesetze im Internet: EStG section 22 no. 1 sentence 3 a) bb) (Ertragsanteil table)
- Gesetze im Internet: EStDV section 55 (joint, survivor and short annuities)
- Gesetze im Internet: EStG section 32a (2026 income tax tariff)
- Gesetze im Internet: EStG section 9a (EUR 102 lump sum for section 22 income)
- Gesetze im Internet: EStG section 20(1) no. 6 (insurance gains)
- Gesetze im Internet: ErbStG section 2 (who is liable)
- Gesetze im Internet: ErbStG section 3(1) no. 4
- Gesetze im Internet: ErbStG section 16 (allowances)
- Gesetze im Internet: ErbStG section 19 (rates)
- PwC Tax Summaries Germany: taxes on personal income (solidarity surcharge, church tax; reviewed 30 Jun 2026)
- PwC Tax Summaries Germany: other taxes (no wealth tax; inheritance tax; reviewed 30 Jun 2026)
- 26 U.S.C. 72 (annuities: exclusion ratio (b)(1) to (b)(3), refund feature (c)(2))
- IRS Publication 939 (12/2025), Table V, ordinary life annuities, one life
- IRS Rev. Proc. 2025-32 (2026 rate tables, Table 3, unmarried individuals; standard deduction)
- Federal Reserve H.10 via FRED: DEXUSEU (US dollars per euro; I invert to euros per dollar)
Goldstein & Co. LLC dba Goldstein Insurance Services · Hans Goldstein, licensed insurance agent, CA lic. #4273294 · NPN 20602398 · 213-414-2808 · hans@hansgoldstein.com
Education, not tax, legal or immigration advice. Rules, thresholds and exchange rates change; confirm with the consulate or immigration authority and a local tax adviser before you act, and get answers in writing. Hans Goldstein is a licensed insurance agent (CA 4273294) and can only offer annuities to residents of states where he is licensed. Annuity payments are guaranteed by the issuing insurer’s claims-paying ability, not by any government. Payout figures are illustrations from a published survey, not quotes. Immediate annuities are generally irrevocable.