The US is one of only two countries that taxes citizens worldwide. If you live in Mexico, you file with both the IRS and Mexico's SAT. Here's exactly how it works — and how to avoid paying more than you have to.
Yes. The United States taxes its citizens on worldwide income regardless of where they live. Moving to Mexico does not change your obligation to file a US tax return every year. This is citizenship-based taxation — the US and Eritrea are the only countries that enforce it.
What changes is that you may qualify for tools that reduce or eliminate double taxation: the Foreign Earned Income Exclusion (FEIE), the Foreign Tax Credit (FTC), and the US-Mexico Tax Treaty provisions. The Mexico guide covers exactly how each one applies to your situation with 2026-verified thresholds.
Mexico uses a 183-day threshold to determine tax residency. If you spend 183 days or more in Mexico during a calendar year, you become a Mexican tax resident and must register with the SAT (Mexico's tax authority) to obtain an RFC number. At that point, you owe Mexican taxes on your worldwide income — on top of your US obligations.
Many Americans living in Mexico try to stay under 183 days to avoid Mexican tax residency. The guide covers why this is often impractical, what happens if you exceed the threshold without registering, and how to structure things properly if you plan to stay long-term.
The FEIE allows qualifying Americans abroad to exclude up to $130,000 (2026) of foreign earned income from US taxation. To qualify, you must pass either the Physical Presence Test (330 days outside the US in a 12-month period) or the Bona Fide Residence Test (established residence in Mexico for a full tax year).
The key limitation: FEIE only applies to earned income. Investment income, rental income, Social Security, and retirement distributions are not eligible. The guide includes a decision flowchart showing which exclusion or credit works best for common expat income types in Mexico.
This is the question most Americans in Mexico get wrong. Mexico's tax rates are progressive and can reach 35% on higher incomes. If you're paying Mexican taxes at a rate higher than your effective US rate, the Foreign Tax Credit often saves you more than the FEIE. You can carry excess credits forward for up to 10 years.
The guide includes side-by-side calculations comparing FEIE vs. FTC for three common Mexico income profiles: remote W-2 employee, freelancer on RESICO, and retiree with mixed income.
If your Mexican bank accounts exceed $10,000 in aggregate value at any point during the year, you must file an FBAR (FinCEN Form 114). Separately, FATCA Form 8938 kicks in at higher thresholds ($200,000 for single filers living abroad). Penalties for non-filing start at $10,000 per violation and can reach $100,000 or 50% of the account balance.
Many Americans in Mexico don't realize that Mexican investment accounts, retirement accounts (Afore), and even some insurance products trigger reporting requirements. The guide lists every account type that needs reporting.
If you freelance or run a business in Mexico, you owe US self-employment tax (15.3%) on top of your income tax — even if you qualify for the FEIE. The Mexico-US Social Security Totalization Agreement can help, but only if you're already paying into Mexico's IMSS system. The guide covers exactly how to structure this to avoid paying social security taxes to both countries simultaneously.
Mexican mutual funds (fondos de inversión) from banks like BBVA, Banamex, and Santander are classified as Passive Foreign Investment Companies (PFICs) by the IRS. The effective tax rate on gains can exceed 50%, plus you face complex annual reporting requirements. The guide covers which products to avoid and what alternatives exist. Read the full PFIC guide →
Mexico's RESICO regime offers freelancers tax rates of 1-2.5% on gross income — dramatically lower than the standard progressive rates. But the low Mexican tax means less Foreign Tax Credit on your US return. The guide runs the numbers on whether RESICO actually saves you money after both countries take their cut. Read the full RESICO guide →
The guide covers the 9 most expensive mistakes Americans make with their Mexico taxes, including: failing to file FBAR (minimum $10,000 penalty per year), choosing FEIE when FTC would save more, investing in Mexican mutual funds (PFIC trap), not registering with SAT after exceeding 183 days, and ignoring self-employment tax obligations. One avoided mistake easily pays for the guide hundreds of times over.
Yes — a US-only CPA will miss Mexico-specific issues, and a Mexican contador won't understand US citizenship-based taxation. You need someone who handles both. The guide includes a vetted list of US expat CPAs experienced with Mexico and Mexican contadores familiar with American clients.
Educational content only — not tax or legal advice. This guide is an orientation document. Tax law is complex and individual situations vary. Always consult a qualified US expat CPA and a licensed local attorney before making financial, visa, or property decisions. Figures are verified as of the date shown and subject to change. Full disclaimer →