U.S. EXPAT TAX GUIDE – MEXICO
What do US expats in Mexico need to report to the IRS?
US citizens and Green Card holders living in Mexico must report all global income to the IRS, including both US and foreign sources.
It’s important to remember that failing to report income can result in penalties, even if the income is earned solely in Mexico.
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What options help reduce US taxes for expats in Mexico?
To reduce taxes, expats can use the Foreign Earned Income Exclusion (FEIE), which allows them to exclude up to US$126,500 of foreign-earned income from US taxation (for the 2024 tax year). To qualify, the physical presence test must be met.
How does the physical presence test work?
To meet the physical presence test, you must spend at least 330 days outside the US within any 12-month period. Short trips back to the US are allowed, but they cannot exceed 35 days within that year.
Can housing expenses be excluded from taxable income?
Yes, US expats can also exclude certain housing costs, like rent and utilities, in addition to the foreign-earned income exclusion. This exclusion allows taxpayers to reduce taxable income further.
How do you calculate the housing exclusion?
The IRS calculates housing exclusions based on location. For Mexico City in 2024, you can exclude up to US$47,900 in housing costs. You must first subtract a base amount of US$19,200 from your actual housing expenses, and the difference can be added to your FEIE.
For example:
- Total housing expenses: US$39,000
- Maximum allowed: US$47,900
- Base amount: US$19,200
- Eligible exclusion: US$39,000 – US$19,200 = US$19,800
What additional deductions can expats claim?
Expats can also claim standard deductions, which for 2024 are US$14,600 for single filers and US$29,200 for married filing jointly. Itemized deductions like mortgage interest and medical expenses may also apply if they exceed the standard deduction.
Should you itemize or take the standard deduction?
Deciding whether to take the standard deduction or itemize depends on which option lowers your taxable income the most.
A tax advisor can assist in determining which is more beneficial based on your specific circumstances. Keep detailed records of all expenses and income to ensure you have proof of any deductions or exclusions claimed.
How do you become a resident in Mexico as a US expat?
To become a resident in Mexico as a US expat, follow these steps:
- Choose Visa Type: Select between a temporary or permanent resident visa based on your stay length.
- Apply at a Mexican Consulate: Submit your visa application, proof of income, and other required documents.
- Enter Mexico: After receiving the visa, enter Mexico within six months.
- Register with INM: Complete paperwork at Mexico’s National Immigration Institute within 30 days.
- Obtain a CURP: Apply for a CURP number for identification and accessing services in Mexico.
What is the Income Tax difference for residents and non-residents in Mexico?
The Mexican tax system differentiates between residents and non-residents:
- Residents: Pay tax on worldwide income, with rates ranging from 1.92% to 35% depending on income.
- Non-Residents: Pay tax on Mexican-sourced income, with rates starting at 15% up to 30% for higher incomes.
| Status | Tax Basis | Income Range | Tax Rate |
| Resident | Worldwide income | Up to MXN7,735 | 1.92% |
| MXN7,735 – MXN65,651 | 6.40% – 10.88% | ||
| MXN65,651 – MXN115,375 | 16.00% | ||
| MXN115,375 – MXN134,119 | 17.92% | ||
| MXN134,119 – MXN160,577 | 21.36% | ||
| MXN160,577 – MXN323,862 | 23.52% | ||
| MXN323,862 – MXN510,451 | 30.00% | ||
| MXN510,451 – MXN974,535 | 32.00% | ||
| MXN974,535 – MXN1,299,380 | 34.00% | ||
| Over MXN1,299,380 | 35.00% | ||
| Non-Resident | Mexican-sourced income | Up to MXN125,900 | 15.00% |
| Over MXN125,900 | 30.00% |
What is Mexico’s VAT?
Mexico’s VAT (IVA) is 16%, applied to most goods and services. Certain goods like basic foods, medicines, and exports may have reduced or zero VAT rates. Businesses charge and remit VAT to the government and can reclaim VAT paid on business expenses.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
