US Taxes for Americans Living in Mexico
Mexico is the top destination for US expats worldwide, with hundreds of thousands of Americans living in cities like Mexico City, Guadalajara, Puerto Vallarta, San Miguel de Allende, and the Riviera Maya. Mexico offers relatively low taxes compared to most OECD countries, a robust US-Mexico tax treaty, and a straightforward (if often misunderstood) tax residency framework. For most US expats, Mexico offers genuine tax efficiency, but the IRS filing obligation never goes away, and the SAT (Mexico's tax authority) has its own requirements for residents.
Local tax authority
The US-Mexico tax treaty (1992, updated 2002 and 2010 protocol) covers income tax with treaty rates on dividends (10%), interest (10-15%), and royalties (10%). It includes a Savings Clause preserving US taxation of citizens. A US-Mexico totalization agreement covers Social Security coordination between IMSS and US Social Security.
Mexico-specific complexities
- Mexican tax residency is triggered by 183+ days in Mexico in a calendar year, distinct from IRS residency tests
- Mexico's top income tax rate is 35%, lower than many European countries, making FEIE viable for some expats
- Mexican residents must report worldwide income to the SAT, employment outside Mexico may create dual filing obligations
- IMSS (Instituto Mexicano del Seguro Social) payroll taxes apply to Mexican-employed workers, totalization agreement with US applies
- FBAR applies to all Mexican bank accounts (BBVA México, Santander México, Banamex, etc.) above the $10,000 threshold
- Mexico imposes a flat 25% withholding tax on rental income paid to non-residents, different from the resident graduated tax
What's different about filing from Mexico
FEIE vs FTC in Mexico
Mexico's top income tax rate of 35% is lower than US top rates for high earners, meaning the relative effectiveness of FEIE vs FTC depends strongly on your income level. For many US expats in Mexico earning moderate incomes, FEIE can be highly effective, especially combined with the Physical Presence Test (330 days outside the US). For higher earners or those with investment income, FTC may yield a better result. We model both approaches for your specific situation.
Mexican tax residency and SAT obligations
Mexico considers you a tax resident if you spend 183 or more days in Mexico in a calendar year, or if Mexico is your center of vital interests (main home, family, business). As a Mexican tax resident, you're required to register with the SAT (obtain an RFC, Registro Federal de Contribuyentes), file annual Mexican income tax returns, and report worldwide income. Many Americans living in Mexico are unaware of these obligations, particularly if they're working remotely for US employers.
Remote workers and digital nomads in Mexico
Mexico has become a major hub for US digital nomads and remote workers, particularly in Mexico City. If you work remotely for a US employer while residing in Mexico for 183+ days, Mexico may have the right to tax your employment income as a Mexican resident. However, the US-Mexico treaty and FTC prevent true double taxation. A key planning consideration: if you qualify for FEIE, excluding your income from US tax may be more straightforward than coordinating dual FTC calculations with multiple income sources.
Recommended plans for Mexico-based expats
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Frequently asked questions about US taxes in Mexico
Do I owe Mexican taxes if I'm living there as a tourist?
If you stay in Mexico more than 183 days in a calendar year (or meet the 'center of vital interests' test), Mexico considers you a tax resident, regardless of your visa type. Many Americans living in Mexico on tourist status are technically Mexican tax residents and have unmet SAT obligations. We focus on your US filing; we recommend a Mexican contador for your SAT obligations.
Should I use FEIE or FTC for my Mexico-based income?
It depends on your income level. Mexico's 35% top rate is below the US top rate, so FEIE can be effective, especially if your income is below the exclusion limit ($126,500 for 2024). For higher incomes or significant investment income, FTC may be better. We model both options for your situation.
Do Mexican bank accounts need to be reported on FBAR?
Yes. All Mexican financial accounts, BBVA México, Santander, Banamex/Citibanamex, Banorte, Nu México, etc., count toward your FBAR threshold. If the combined balance of all foreign accounts exceeded $10,000 at any point, FBAR is required.
I'm a US citizen renting out property in Mexico, how is that taxed?
Mexican rental income must be reported on your US return (Schedule E). Mexican taxes paid (whether the 25% flat withholding rate for non-residents or the graduated rate as a resident) are creditable via FTC in the passive income basket. Depreciation rules differ between Mexico and the US, we reconcile both.