U.S. taxes for Americans in Mexico: what to file, and how to catch up.
Americans in Mexico, retirees and remote workers alike, still file a U.S. return every year once their income is over the filing threshold. Most owe little, thanks to the treaty and either the exclusion or the foreign tax credit. The usual gaps are Mexican bank accounts, rentals and Afores. Most people who fell behind can catch up under the Streamlined procedures, with no penalty if they qualify.
Sound familiar?
- You retired to Mexico and assumed U.S. returns stopped when you left.
- You work remotely for a U.S. or foreign company from Mexico.
- You rent out a condo or casa in Mexico.
- Your Mexican bank account has crept above $10,000.
How does the IRS treat Mexican accounts, property and pensions?
Accounts go on your FBAR once they add up to more than $10,000. What differs is how the IRS taxes them.
| Account | U.S. treatment | |
|---|---|---|
| Mexican bank accounts | Interest is taxable, and the accounts count toward your FBAR total. | Taxable |
| CETES | Mexican government treasury certificates. The return is taxable interest for the U.S., but they aren’t PFICs. | Taxable |
| Rental income in Mexico | Reported on your U.S. return. Mexican tax paid on it can usually be credited. | Report it |
| Fideicomiso (property trust) | A standard fideicomiso used to hold Mexican property is generally not treated as a foreign trust, so no Form 3520. | Usually fine |
| IMSS pension (Mexican social security) | Under the treaty, only Mexico can tax it, even for U.S. citizens. | Usually fine |
| Afore retirement accounts | Could be treated as Mexican social security, which the treaty leaves to Mexico, or as a foreign retirement account the U.S. can tax. Either way it may need reporting. We’ll check yours. | Check first |
| Mexican funds | Fondos de inversión and Mexican-listed ETFs are usually PFICs (Form 8621). | Watch out |
| Selling Mexican property | U.S. tax may apply to the gain even if Mexico taxed it too. Currency moves can create gains. | Plan ahead |
Which Mexican investments are PFICs?
Mexican investment funds (fondos de inversión) offered by banks and brokers, and ETFs listed in Mexico. For U.S. tax they’re passive foreign investment companies, or PFICs, with their own reporting and harsh default tax rules.
- Each fund needs its own Form 8621 in most years, and gains can be taxed at the top U.S. rate plus an interest charge, unless an election was made in time.
- Not PFICs: CETES and other Mexican government bonds, shares of individual companies, and bank deposits.
- Many retirees keep their investments in the U.S., which avoids the PFIC rules entirely, though some U.S. brokers restrict accounts for people living abroad.
What does the U.S.–Mexico tax treaty actually say?
The treaty was signed in 1992 and updated by protocols in 1994 and 2002. For Americans living in Mexico, these parts matter most:
- The saving clause. The U.S. can tax its citizens as if the treaty didn’t exist, except for the provisions the treaty lists.
- Social security. U.S. Social Security is taxed only by the U.S., not Mexico, and Mexican IMSS pensions only by Mexico, even for U.S. citizens.
- Relief from double tax. The U.S. gives a credit for Mexican income tax (ISR) on the same income, such as Mexican rent or a Mexican salary.
There’s no U.S.–Mexico social security agreement in force: one was signed in 2004 but never took effect. So a self-employed American in Mexico generally owes U.S. self-employment tax, and the exclusion doesn’t reduce it. Read the U.S.–Mexico tax treaty on IRS.gov.
When are Mexican and U.S. taxes due?
Both tax years run January to December, so each Mexican year lines up with one U.S. return.
| Mexico | United States | |
|---|---|---|
| Tax year | January to December | January to December |
| Annual return | April 30 (the declaración anual), if you have to file | April 15, moved to June 15 automatically when you live abroad, or October 15 with an extension |
| Paying the tax | Withheld from a Mexican salary, or in monthly provisional payments for rent and business income | April 15, even if you file later |
| Foreign accounts | No separate report for most individuals | The FBAR, due October 15, filed online |
Foreign tax credit or exclusion: which wins in Mexico?
It depends on how you earn your money, more than in most countries:
- Retirees living on Social Security, pensions and IRA withdrawals use neither much. That income is U.S. income, outside the exclusion, and the U.S. taxes it as if you lived there.
- Remote workers who pay little or no Mexican tax usually use the foreign earned income exclusion, up to $130,000 of earned income for 2025, if they meet the 330-day or residence test.
- Employees of Mexican companies pay Mexican ISR at rates up to 35%, and the foreign tax credit often covers the U.S. tax on that salary.
- Landlords credit the Mexican tax on their rent against the U.S. tax on it.
We run your returns both ways before choosing. How we compare the exclusion and the credit.
A worked example: retirees at Lake Chapala
Pat and Lee retired to Ajijic in 2019. They live on U.S. Social Security and IRA withdrawals, keep a Mexican bank account with about $25,000 in it, and rent out a casita on their land, which they own through a fideicomiso. They stopped filing when they moved.
| Item | How it’s handled |
|---|---|
| Social Security | Taxed by the U.S. as if they lived there; under the treaty, Mexico doesn’t tax it. |
| IRA withdrawals | Taxable on their U.S. return, and enough on their own to require filing. |
| Mexican bank account | Over $10,000, so an FBAR every year, and the interest goes on the return. |
| Casita rent | Reported in the U.S. with U.S. depreciation, with a credit for the Mexican tax they pay on it. |
| Fideicomiso | Not a foreign trust for these rules, so no Form 3520. |
| Catching up | Three years of returns and six FBARs under the Streamlined procedures, with no penalty if they qualify. |
Catching up from Mexico
Most Americans in Mexico who fell behind without meaning to can catch up under the Streamlined Foreign Offshore Procedures: three years of returns, six years of FBARs and, if you qualify, no penalties. If only FBARs are missing, or you’ve moved back to the U.S., another route may fit better. See every IRS catch-up option for expats, compared.
Common questions
I only get U.S. Social Security. Do I need to file?
Possibly not, if Social Security is your only income. Add a pension, interest or rent and you often do. Our free tool will tell you. Under the treaty, only the U.S. can tax your Social Security, not Mexico.
I work remotely from Mexico. Which country taxes me?
It depends on your residency and where your employer is. Many remote workers can use the foreign earned income exclusion for U.S. purposes. The U.S. and Mexico have no social security agreement in force, so U.S. Social Security tax can still apply: self-employment tax if you work for yourself, or withholding if a U.S. employer pays you.
Do I need to report my fideicomiso?
Usually not as a foreign trust. The IRS has said a standard Mexican property fideicomiso isn’t a trust for these rules. The property itself may still matter when you sell.
Is my Mexican IMSS pension taxed in the U.S.?
No. Under the treaty, only Mexico can tax it, even though you’re a U.S. citizen.
Are CETES reportable?
Yes. The interest is taxable on your U.S. return, and the account counts toward your FBAR total. They’re not PFICs, which keeps them simpler than Mexican funds.
I sold my house in Mexico. Do I owe U.S. tax?
Possibly. The U.S. measures the gain in dollars and excludes up to $250,000 ($500,000 for couples) for a main home you lived in. Any Mexican tax on the sale can usually be credited.
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