U.S. TAX GUIDE IN MEXICO
I’ve been living in Mexico for many years and I’ve never filed a US tax return. What now?
If you’ve been living in Mexico for years and didn’t know you needed to file a US tax return, there are ways to become US tax compliant with the IRS.
Many people get poor advice or misunderstand the filing requirements, thinking they don’t need to file if they don’t owe taxes. However, this is a common misconception.
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What should I do if I have yet to file my tax returns for many years?
If you haven’t filed and haven’t received any notices from the IRS about audits or tax returns, one option is to use the Streamlined Foreign Offshore Procedure. More commonly known as the Streamlined Tax Amnesty program, it’s designed to help expats become compliant with their US tax obligations without facing penalties.
Will the IRS know if I haven’t filed my expat taxes?
Technically, yes. There are, however, several ways they will be able to discover it.
What is the Streamlined Foreign Offshore Procedure?
The Streamlined Foreign Offshore Procedure allows you to catch up on your tax filings by submitting the most recent three years of tax returns.
For example, if you are filing in 2024, you would submit tax returns for 2023, 2022, and 2021. Along with these tax returns, you must also file Foreign Bank Account Reports (FBARs) for the past six years if the aggregate balance of your foreign accounts exceeds US$10,000 at any point during the year.
Additionally, you need to submit an offshore certification explaining why you haven’t filed, and confirming that you will comply going forward.
Does TopTax help clients with the offshore certification?
We assist our clients by understanding their tax situation and their reasons for not filing. We then help prepare the offshore certification as part of the Streamlined Foreign Offshore Procedure package.
Do I only need to file the last three years of returns through the amnesty program?
Yes, even if you haven’t filed US tax returns for 10, 15, or 20 years, you only need to file the last three years through the amnesty program, so long as you haven’t received any correspondence from the IRS or have been audited.
What about penalties and interest?
The amnesty program generally removes penalties for late filing, including FBAR penalties. However, if you owe taxes, you will still need to pay interest on the outstanding amount.
The program is designed to help you become compliant without the burden of significant penalties.
Once you become compliant through the Streamlined Foreign Offshore Procedure, it is important to maintain it to avoid future penalties. Regularly filing your US tax returns and FBARs will help ensure you stay on the right side of IRS requirements.
Can I claim stimulus payments while living in Mexico?
Yes, even if you are living in Mexico, you can claim IRS stimulus payments. This applies whether you file a regular tax return or use the amnesty program.
What is the eligibility criteria for the third stimulus payment?
To be eligible for the third stimulus payment of US$1,400 per taxpayer and spouse (if both are US persons), you must file by April 2025. Additionally, your income must be US$75,000 or less to claim the full amount.
If your income exceeds US$75,000, the stimulus payment amount starts to phase out.
What happens if I don’t file FBARs?
Failing to file FBARs can result in severe penalties, including fines and potential criminal charges.
The FBAR is required if you have foreign bank accounts that exceed a combined total of US$10,000 at any time during the calendar year. These reports help the US government track foreign financial accounts and prevent tax evasion.
What are the penalties for not filing a tax return?
Failure-to-File Penalty
- Basic Penalty: The IRS will impose a failure-to-file penalty if you do not file your tax return by the due date, including extensions.
The penalty is generally 5% of the unpaid taxes for each month or part of a month that the return is late. This penalty can increase up to 25% of your unpaid taxes. - Minimum Penalty: If your tax return is more than 60 days late, the minimum penalty is either US$485 or 100% of the tax due, whichever is less.
Failure-to-Pay Penalty
- Basic Penalty: If you do not pay the taxes you owe by the due date, the IRS will impose a failure-to-pay penalty.
This penalty is generally 0.5% of your unpaid taxes for each month or part of a month that the tax remains unpaid. This penalty can also increase up to a maximum of 25% of your unpaid taxes. - Combined Penalties: If both the failure-to-file penalty and the failure-to-pay penalty apply in the same month, the combined penalty for that month will be 5% of the unpaid taxes.
Interest on Unpaid Taxes
- Interest Charges: Besides penalties, the IRS charges interest on unpaid taxes. The interest rate is determined quarterly and is the federal short-term rate plus 3%. Interest compounds daily from the due date of the return until the date of payment.
How do I file FBARs?
FBARs are filed electronically through the Financial Crimes Enforcement Network’s (FinCEN) website (You can visit it here). The deadline for filing is April 15, with an automatic extension to October 15.
