Mexico’s territorial-ish treatment of foreign income for Mexican tax residents convinces many Americans they have escaped the IRS. They have not. If you hold a US passport, you owe US tax on worldwide income unless you qualify for exclusions or credits — regardless of where you live in Mexico.
We are not CPAs; this is operational guidance from filing hundreds of cross-border residency cases. Pair with a US–Mexico tax preparer before you move.
Rule 1: US Citizens File US Returns From Mexico
Physical residence in Puerto Vallarta or CDMX does not end US filing obligation. You still file Form 1040. Mexico residency may change which country taxes specific income first — not whether you file.
Foreign Earned Income Exclusion (FEIE)
Qualifying expats can exclude ~$130,000 (2026 inflation-adjusted) of foreign earned income if they pass the physical presence or bona fide residence test. Pensions, Social Security, and investment income are not FEIE income — a common retiree mistake.
Foreign Tax Credit vs Treaty Benefits
If Mexico taxes income that the US also taxes, you may claim a foreign tax credit (Form 1116) to reduce double taxation. The US–Mexico tax treaty allocates taxing rights on pensions, dividends, and tie-breaker residency when both countries claim you.
FBAR and FATCA — Mexico Bank Accounts Count
US persons with foreign accounts exceeding $10,000 aggregate at any point in the year file FinCEN 114 (FBAR). FATCA (Form 8938) may also apply at higher thresholds. Mexican banks report to SAT; the IRS receives information returns. See FBAR/FATCA guide.
Mexican Tax Residency vs Immigration Residency
Your INM resident card does not automatically make you a Mexican tax resident. SAT looks at center of vital interests — home, income sources, business ties. Some expats hold Mexican immigration residency while remaining US tax residents under treaty tie-breaker rules.
Practical Strategy for Retirees
- Model Social Security + pension + RMDs before moving — FEIE will not shield them
- If you work remotely for a US employer from Mexico, FEIE may help — but payroll withholding rules still apply
- Open Mexican accounts only when you understand FBAR reporting
- Get a preparer who files both countries — not just US expat software
Mexico Residency service — full process →
Frequently Asked Questions
Do I pay US tax if I live in Mexico full-time?
Yes as a US citizen, unless you renounce citizenship. Mexico residence changes credits and treaty allocation — not the filing requirement.
Is Social Security taxed in Mexico?
Treaty provisions generally assign primary taxing rights on Social Security to the US for US citizens — confirm annually with a preparer.
Does Mexico tax my foreign pension?
Mexican tax residents may face Mexican tax on worldwide income depending on source and treaty — SAT enforcement on foreign pensions has increased.
Mexico guides: Residency service · How to move · How to retire · Best places to live · Best places to retire
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