2025 Tax Guide For Americans in Mexico
Living in Mexico as a U.S. expat comes with unique tax responsibilities. While Mexico taxes residents and non-residents differently, the U.S. requires its citizens and Green Card holders to file taxes every year—no matter where they live.
This guide will help you understand your obligations in both countries and how to avoid double taxation.
Mexico: Quick Tax Overview
| Category | Mexico | U.S. |
|---|---|---|
| Tax year | Jan 1 – Dec 31 | Jan 1 – Dec 31 |
| Tax return deadline | Apr 30 (May 31 if e-file) | Apr 15 (extensions available) |
| Residency basis | Physical presence / vital interests | Citizenship & residency |
| Top individual rate | 35% | 37% |
| Corporate tax | 30% | 21% |
| VAT (sales tax) | 16% (reduced near border) | State sales tax (avg ~7.25%) |
| Estate / inheritance tax | None federally | Yes (federal estate tax applies) |
Residency Rules in Mexico
Your residency status determines how you are taxed:
- Residents: Taxed on worldwide income at progressive rates (1.92%–35%). Eligible for deductions and credits.
- Non-residents: Taxed only on Mexican-sourced income (15%–30%). Fewer deductions and credits available.
You are considered a Mexican tax resident if any of these apply:
- You spend 183+ days in Mexico in a calendar year.
- Your primary home, job, or family ties are in Mexico.
- Your center of vital interests is in Mexico (e.g., your main economic activities take place there).
- You hold Mexican citizenship, with other ties confirming residency.
Mexican Income Tax Rates (2025)
For Residents (Progressive):
- 1.92% on income up to MXN 8,952
- Rising gradually to 35% on income above MXN 4,511,707
For Non-Residents:
- Up to MXN 125,900 → Exempt
- MXN 125,900 – 1,000,000 → 15%
- Above MXN 1,000,000 → 30%
Other Mexican Taxes Expats Should Know
- VAT (IVA): Standard rate of 16% on most goods and services. Reduced rates apply near the U.S. border. Basic food, medicine, and education are often exempt or zero-rated.
- Property Tax (Predial): Annual local tax, based on assessed value.
- Payroll Tax: Employers pay ~3% in Mexico City; varies by state.
- Wealth, Inheritance & Estate Taxes: No federal-level taxes. However, gifts may be taxable as income depending on the giver/recipient relationship.
U.S. Tax Responsibilities While in Mexico
Even if you live in Mexico, U.S. citizens and Green Card holders must file with the IRS each year.
Key tax forms include:
- Form 1040 – Standard U.S. income tax return.
- Form 2555 (FEIE): Exclude up to $126,500 (2025) of foreign earned income if you meet the physical presence (330 days abroad) or bona fide residence test.
- Form 1116 (Foreign Tax Credit): Credit for Mexican income taxes paid.
- FBAR (FinCEN 114): Required if foreign bank accounts exceed $10,000 at any time.
- Form 8938 (FATCA): Report foreign financial assets if over the reporting threshold.
Avoiding Double Taxation
The U.S.–Mexico Tax Treaty and U.S. expat provisions help reduce tax burdens:
- Foreign Earned Income Exclusion (FEIE): Excludes a set amount of foreign income.
- Foreign Tax Credit (FTC): Credit for taxes paid to Mexico.
- Tax Treaty Benefits: Reduced withholding rates and residency tie-breaker rules.
Key Deadlines
- Mexico:
- Annual return: April 30 (May 31 if filing electronically)
- Monthly/quarterly payments: 17th of following month
- U.S.:
- Standard deadline: April 15, 2025
- Automatic expat extension: June 16, 2025
- Optional extension: October 15, 2025
Mexico vs. U.S. Tax Snapshot
- Income Tax: Mexico’s top rate is slightly lower (35% vs. 37%).
- Corporate Tax: Higher in Mexico (30% vs. 21%).
- VAT vs. Sales Tax: Mexico applies a broad VAT at 16%, while U.S. sales tax varies by state.
- Inheritance/Estate Taxes: No Mexican federal estate or inheritance tax, but the U.S. estate tax applies.
How Expatriate Tax Returns Can Help
Navigating dual tax obligations in Mexico can be overwhelming. Our team specializes in helping Americans abroad:
- Preparing both U.S. and Mexican tax filings
- Maximizing credits, deductions, and treaty benefits
- Ensuring compliance to avoid IRS or SAT penalties
- Offering peace of mind with human-prepared returns—no guesswork, no stress
Book a consultation today and let us simplify your tax life in Mexico.
