Filing US expatriate tax returns for American expats Mexico

By Expat News

Mexico is one of the favorite destinations among American expats due to its proximity to the USA, warm weather and a large number of Mexican citizens residing in the USA. Understanding Mexican residency rules and tax system is essential for expats Mexico to file Mexican returns and US expatriate tax returns.

We get a lot of questions from expats Mexico. What are foreign income tax rates for resident and non-residents? What is fideicomiso? Do you provide US expatriate tax services for American expats Mexico? The list is quite extensive so we decided to provide a summary of the most popular expatriate tax questions from our clients in Mexico.

Expatriate Tax Rules and Returns for Expats Mexico

One important thing to remember is that US persons including US citizens or green card holders are required to pay taxes on their worldwide income and to file US expatriate tax returns. IRC section 911 provisions have specifically introduced to avoid double taxation.

  • Foreign earned income exclusion. American expats Mexico can exclude up to $101,300 for 2016 of foreign earned income.
  • Foreign housing exclusion. Additionally, American expats Mexico may be able to reduce the US tax liability by deducting certain foreign housing expenses.
  • Foreign tax credit. American expats Mexico can take the foreign tax credit for income taxes paid in Mexico.

Also, American expats Mexico may be required to file the FBAR, Report of Foreign Bank and Financial Accounts.

Tax system in Mexico – FAQ

Are expats Mexico subject to the worldwide taxation by Mexico?

American expats Mexico who are considered residents for tax purposes are taxed on a worldwide income. Non-residents are subject to tax only on the Mexican source income.

Who is considered a tax resident in Mexico?

Residency is not determined by the number of days spent in Mexico. As a general rule, American expat in Mexico is considered a resident if s/he established a home in Mexico. If a person has a home in another country too, then s/he is taxed as a resident in Mexico if Mexico is his/her center of vital interests. For example, if a main center of professional activities is located in Mexico or more than 50% of income during the year was derived from Mexico. Mexican citizens must prove that they are residents in another country.

What is the tax year in Mexico?

Mexico has a calendar tax year. This is similar to the US tax system.

What are income tax rates in Mexico?

Individual income tax rate for residents is based on a progressive scale from 1.92% to 30%.

Non-residents are subject up to 30% tax rate on salaries.

What is considered a taxable income in Mexico?

Generally, all types of remuneration and benefits are subject to income tax: salary, a car allowance, school tuition reimbursements, cost of living allowances, expatriate premiums, employer contribution to rent etc. Some benefits are excluded like social welfare benefits, moving expense reimbursement, certain deferred compensation plans.

Can an American expat in Mexico file an expatriate tax return on overseas taxes with a spouse?

Spouses don’t have a choice to file a joint return. If they own a property together, all income must be split between them. Children have to report their income separately.

Is it a requirement to file a Mexican tax return every year?

American expats in Mexico have to file a tax return by April 30. No extension is allowed. Non-residents are not required to file a tax return due to monthly tax payments/withholding.

Does Mexico have a tax treaty and social security agreement with the USA?

There is a tax treaty between the USA and Mexico. American expats Mexico must consult an expatriate tax professional to review issues related to overseas taxes. In 2004 Mexico signed a tentative totalization agreement with the USA. The Mexican Institute of Social Security is responsible for administration and collection of mandatory social security benefits. Additionally, the USA has signed a FATCA agreement with Mexico on November 19, 2012.


American expats must review Mexican and US tax rules before moving to Mexico and filing US expatriate tax returns.

Expats Mexico with additional questions about US expatriate tax preparation and different treaty positions, please seek help of an expat tax CPA. Tax experts at Artio Partners will be pleased to assist with a wide range of international tax issues.