Pay and pensions taxed in Mexico can earn a credit against your US expat taxes. Mexico’s rates are high enough that the credit usually clears the tax on a salary.
Mexico taxes each peso above MXN 668,840 of 2026 taxable income at 30% or more. A single US filer’s rate stays at 24% or less up to $201,775 of taxable income. With no US-Mexico totalization agreement in force, freelancers still owe US self-employment tax.
Updated · Sources
Mexico and the US in 2026
- 35%
- is the top rate in Mexico’s 2026 tariff, from MXN 5,107,703.93 of taxable income.
- $0
- is what Mexico may charge on your US Social Security, whatever your citizenship.
- 2004
- is when the US and Mexico signed a Social Security agreement, which has never taken effect.
Mexico’s rates come from its 2026 annual tariff, published on December 28, 2025.
Your US return from Mexico starts with how you are paid.
A Mexican employer pays your salary
The Mexican tax your employer withholds can count toward the US credit, whether or not you file in Mexico. Mexico lets an employee skip its annual return when wages and interest total MXN 400,000 or less. Interest must stay at MXN 100,000 or less, with tax withheld on it. Leaving a job before December 31, or having two employers at once, means you must file in Mexico.
A US company pays you to work from Mexico
Pay from an American employer generally stays subject to US Social Security and Medicare tax. No totalization agreement is in force to shift that coverage to Mexico’s system.
Clients pay you as a freelancer
Net profit stays subject to US self-employment tax, even when the credit or the exclusion wipes out your income tax. A US return is due once net earnings from self-employment reach $400, whatever your other income.
Your pay lands in a Mexican bank account
You file an FBAR once the peak balances of your foreign accounts add up to more than $10,000. Mexican bank and brokerage accounts count, and the FBAR lists every account. It is due April 15, and FinCEN allows until October 15 without any request.
Form 8938 is a separate IRS report, filed with your return. A single filer with a tax home abroad gets higher thresholds by passing the bona fide residence or physical presence test. You then file it once foreign financial assets exceed $200,000 on December 31 or $300,000 at any time in the year.
How much do Mexico’s taxes take from an expat professional’s pay?
Mexico’s 2026 annual tariff has 11 brackets, starting at 1.92%.
MXN 500,000
MXN 85,774
Mexico takes 17.2% of this income, and 23.52% of each added peso up to MXN 668,840.
MXN 1,000,000
MXN 224,833
Mexico takes 22.5% of this income, and 30% of each added peso.
MXN 1,500,000
MXN 379,294
Mexico takes 25.3% of this income, and 32% of each added peso.
MXN 2,000,000
MXN 545,243
Mexico takes 27.3% of this income, and 34% of each added peso short of the top bracket.
Each figure is the fixed amount for its bracket, plus the bracket’s rate on income above the bracket’s lower limit. At MXN 1,000,000, that is MXN 125,485.07 plus 30% of MXN 331,159.85. The rates are Mexico’s 2026 annual tariff, from Anexo 8 of the Resolución Miscelánea Fiscal para 2026. No peso amount is converted to dollars.
Mexican taxes for US citizens reach a private US pension and dividends, but not US Social Security.
The US-Mexico treaty, in force since December 28, 1993, settles who taxes pensions and Social Security.
| Mexico | US | |
|---|---|---|
| US Social Security | Not taxed Even as a resident | Taxed Under the usual US rules |
| A private US pension for past work | Taxed As the country where you live | Taxed Mexican tax credited under Article 24 |
| Gains on shares sold on Mexico’s stock exchange | 10% final tax | 0%, 15% or 20% On shares held over a year, plus any net investment income tax. Ordinary rates apply otherwise. |
| Dividends, US stocks included | Taxed as income Plus a further 10% | Taxed With relief under Article 24 |
| Annual return | Due in April For the calendar year before | By June 15, filing from Mexico Unpaid tax accrues interest from April 15 |
The treaty’s saving clause lets the US tax its citizens as if the treaty did not exist, except under the articles it lists. Articles 19(1)(b), on Social Security, and 24, on double tax relief, are two of those exceptions.
What can still raise your US tax in Mexico?
Paying tax under RESICO
RESICO’s low rates leave little Mexican tax to credit against the US tax on your profit, even if all of it qualifies. A freelancer whose income last year was MXN 3,500,000 or less can pay 1% to 2.5% of invoiced receipts, with no deductions. The exclusion may leave less US income tax instead.
Going from RESICO to a salaried job
If you elect the exclusion while on RESICO, it stays in force after you take a Mexican salary. Mexican tax on the pay it excludes then earns no credit. Revoke it to credit that tax, and you cannot elect the exclusion again for five tax years without IRS consent.
Investing through a Mexican fund or ETF
A fund or ETF set up in Mexico is generally a passive foreign investment company (PFIC). The US taxes PFIC shares under a regime of their own, whatever Mexico charges on the gains.
Holding an Afore
An Afore holds your individual retirement account in Mexico’s mandatory pension system. No part of the US-Mexico treaty postpones US tax on the money paid in or the returns it earns. The IRS has issued no guidance on an Afore, so settle its US treatment with your CPA before you file.
We keep your US return in step with the tax you pay in Mexico.
We prepare and file US returns for Americans who work or retire in Mexico. Your contador or employer handles the Mexican side.
- We credit the Mexican income tax on your salary on Form 1116. The figures come from your employer’s annual statement or your contador’s return.
- We prepare your FBAR, plus Form 8938 if you need it, and your quote prices each foreign account and fund before we start.
- We compare the exclusion with the credit on your RESICO income, and again before you take a salaried job.
- We calculate the estimated payments your freelance profit needs, self-employment tax included.
- We handle the reply when the IRS or a state writes about a return we prepared, at no cost beyond your fee.
- Individual return
- from $195
- Business return
- from $495
We quote a flat fee before work starts. We do not bill hourly.
What do Americans in Mexico ask about their US taxes?
Do I have to pay U.S. taxes if I live in Mexico?
Yes, if you are a US citizen, because the US taxes citizens on income from everywhere. Green card holders are taxed the same way, unless they claim Mexican residence under the treaty’s tie-breaker. The filing threshold is measured on gross income, so pay you plan to exclude still counts toward it. On a Mexican salary, the foreign tax credit usually cancels the US income tax in full. US tax is more likely to remain on income Mexico may not tax, such as US Social Security. Freelancers with $400 or more of net self-employment earnings also owe self-employment tax.
Does Mexico tax U.S. retirement income?
Mexico can tax a private US pension once you live there, though it cannot tax your US Social Security. Article 19(1)(a) of the treaty gives the country where you live the right to tax a private pension for past employment. A US government pension follows Article 20, which generally leaves it to the US alone. That can change if you are a Mexican national or permanent resident. Under Article 19(1)(b), only the US may tax US Social Security, and that rule covers citizens too. The US still taxes a citizen’s private pension, and Article 24 relieves the double tax. Americans in Canada have the reverse rule, since only Canada taxes their US Social Security.
Does Mexico have a totalization agreement with the U.S.?
No, the US-Mexico totalization agreement, signed in 2004, has never entered into force. A freelancer in Mexico therefore owes US self-employment tax on profit, even with no US income tax due. Employees of an American employer generally stay in US Social Security and Medicare too. Americans in the UAE are in the same position, with no agreement either.
Are taxes higher in Mexico or the US?
On a professional salary, Mexico’s usually are. Its 2026 tariff runs from 1.92% to 35%, and every peso above MXN 668,840 of taxable income is taxed at 30% or more. US rates run from 10% to 37%. Listed Mexican shares reverse the gap, since Mexico takes only a 10% final tax on the gain. Where your US rate on it is 15% or 20%, some US tax remains after the credit.
Can a US citizen use RESICO in Mexico?
Yes, RESICO turns on residence and income, not citizenship, so a US citizen who is a Mexican tax resident can join. Last year’s income must be MXN 3,500,000 or less, and partners or shareholders of companies are shut out. You pay monthly on gross invoiced receipts, with no deductions, at 1% to 2.5%. The low Mexican rates usually leave US tax on the same profit, plus US self-employment tax.
Sources
- US-Mexico income tax convention (1992)
- Protocol to the US-Mexico convention (2002)
- Mexico, SAT, Anexo 8 de la Resolución Miscelánea Fiscal para 2026 (income tax tariffs)
- Mexico, Ley del Impuesto sobre la Renta (income tax law)
- Social Security Administration, US international social security agreements
- IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
- IRS, Rev. Proc. 2025-32 (2026 inflation adjustments)
- 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States
- 26 U.S.C. § 904, Limitation on credit
- 26 U.S.C. § 911, Citizens or residents of the United States living abroad
- 26 U.S.C. § 1402, Definitions (net earnings from self-employment)
- 26 U.S.C. § 1297, Passive foreign investment company
- 31 C.F.R. § 1010.350, Reports of foreign financial accounts
- IRS, Instructions for Form 8938
- IRS, Comparison of Form 8938 and FBAR requirements
Reviewed and updated September 2026. General information, not advice for your situation.