U.S. TAX GUIDE IN MEXICO
Do US citizens need to file a US tax return in Mexico?
It depends on your specific situation.
Normally, US citizens and green card holders living in Mexico must file a US tax return if their income exceeds certain thresholds.
This is because the US taxes its citizens on their worldwide income, so residence in Mexico does not exempt you from this requirement. However, the need to file a return depends on your filing status and income level.
Table of Contents
What are the filing thresholds for different statuses?
The filing thresholds vary based on your filing status.
For example, if you’re single and under 65 years old, you need to file if your income exceeds US$14,600. If you’re married and filing jointly, and both spouses are under 65, the threshold is US$29,200. For those filing as married filing separately, the threshold is much lower at US$5.
Filing Status (2024) | Income Threshold |
Single (under 65) | US$14,600 |
Married Filing Jointly | US$29,200 |
Married Filing Separately | US$5 |
What if I’m married to a non-US person?
If you’re married to a Mexican citizen who is not a US person or green card holder, your filing status should be married filing separately unless you have dependents, which complicates the situation.
Many expats mistakenly file as single, which can lead to issues with the IRS.
Do I need to file if I have self-employment income in Mexico?
Yes, if you have over US$400 in self-employment income, you are required to file a US tax return regardless of your other income levels.
This rule applies even if your total income is below the regular filing threshold for your status. For instance, if you are single with only US$500 of self-employment income, you will still need to file.
Here’s an example.
Imagine you’re a single US citizen living in Mexico. Your total income for the year is US$13,000, but you earned US$500 from freelancing.
Despite your total income being below the US$14,600 threshold, earning US$500 in self-employment income means you must file a tax return.
Why is it important to choose the correct filing status?
Choosing the correct filing status is important for compliance and avoiding penalties.
Filing incorrectly, such as filing as single when you should file as married filing separately, can lead to fines from the IRS.
Many US expats in Mexico mistakenly file as single because their spouse is not a US citizen or green card holder. However, the correct status is married filing separately, especially if there are no dependents involved.
Does Mexico have a tax treaty with the US?
Yes, Mexico has a tax treaty with the US.
This treaty helps prevent double taxation and provides a clear explanation of the taxation of income types such as pensions, dividends, and capital gains.
It also outlines which country has the right to tax specific types of income and provides tax credits and exemptions to avoid double taxation.
What are the common forms I may need to submit to the IRS from Mexico?
- Form 1040: The standard US individual income tax return.
- Form 2555: To claim the Foreign Earned Income Exclusion (FEIE).
- Form 1116: To claim the Foreign Tax Credit (FTC).
- Form 8938: Statement of Specified Foreign Financial Assets (required under FATCA).
- FBAR (FinCEN Form 114): To report foreign bank accounts if their aggregate value exceeds US$10,000 at any time during the year.
- Form 5471: Information Return of US Persons With Respect to Certain Foreign Corporations (if you own more than 10% of a foreign corporation).
- Form 3520: Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.
- Form 3520-A: Annual Information Return of Foreign Trust with a US Owner.
- Form 8621: Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.
- Form 8865: Return of US Persons With Respect to Certain Foreign Partnerships (if you have an interest in a foreign partnership).
- Form 8858: Information Return of US Persons With Respect to Foreign Disregarded Entities and Foreign Branches.
What are the popular deductions I can take as a US expat living in Mexico?
- Foreign Earned Income Exclusion (FEIE): Allows you to exclude up to US$126,500 of foreign-earned income from US taxation.
- Foreign Tax Credit (FTC): Allows you to claim a credit for taxes paid to the Mexican government, reducing your US tax liability.
- Housing Exclusion or Deduction: If you qualify for the FEIE, you may also be able to exclude or deduct certain housing expenses, such as rent, utilities, and insurance.
- Standard Deduction: An automatic deduction that varies based on your filing status (e.g., $14,600 for single filers in 2024).
- Itemized Deductions: If your itemized deductions exceed the standard deduction, you can deduct expenses such as mortgage interest, medical expenses, and charitable contributions.
- Education Expenses: If you have dependents studying abroad, you may be able to deduct certain educational expenses, such as tuition and related fees.
- Retirement Contributions: Contributions to certain retirement accounts, such as IRAs, may be deductible, reducing your taxable income.
- Charitable Contributions: Donations to qualified charitable organizations can be deducted if you itemize your deductions. This can include donations to US-based charities as well as some foreign charities recognized by the IRS.
- Medical and Dental Expenses: If your medical and dental expenses exceed 7.5% of your adjusted gross income, you can deduct the amount above this threshold if you itemize deductions.
- Business Expenses: If you are self-employed, you can deduct business-related expenses such as travel, office supplies, and professional fees, which can significantly reduce your taxable income.
