Mexican taxes for Americans: how the SAT and the IRS fit together

Once you set up a home in Mexico, you can owe tax to two governments at once. The trick is making sure you don't pay twice on the same dollar, or peso.

The short version

• Mexico taxes residents on worldwide income, whatever their nationality. Nonresidents pay only on Mexican-source income [2].
• You become a Mexican tax resident when you set up a home in Mexico. If you also have a home elsewhere, Mexico looks at your center of vital interests [1].
• Mexico's top rate for residents is 35% for 2026, on taxable income above about MXN 5.1 million (about USD 273,000) [2]. Annual returns are due April 30 [3].
• The IRS still taxes you as a citizen. The US–Mexico tax treaty doesn't change that much, because of its saving clause [4][5]. Your main tools are the foreign tax credit and the foreign earned income exclusion [6].
• There is no US–Mexico totalization agreement in force. Mexico isn't on the Social Security Administration's list of agreement countries [7], and a 2004 agreement was signed but never took effect [8].

When Mexico considers you a tax resident

Mexico's rule is in Article 9 of the Federal Tax Code (Código Fiscal de la Federación). You're a tax resident if you've established a home in Mexico (casa habitación). Note that it's not a 183-day test like many countries use [1].

If you also have a home in another country, say a house you kept in Austin, Mexico looks at where your center of vital interests is. It's treated as being in Mexico if either [1]:

1. More than 50% of your income in the calendar year comes from Mexican sources, or
2. Mexico is the main place of your professional activities.

A few practical points:

• Tourist use doesn't count. Renting a place for vacation doesn't make it your home for tax purposes.
• Immigration status and tax residency are different things. A temporary or permanent resident card doesn't automatically make you a tax resident, and a tourist entry doesn't protect you from it either. What matters is the home and your ties.
• Remote workers, take note. If you rent a long-term apartment in Roma and work for a US employer from your laptop, you may be a Mexican tax resident even though all your pay comes from the States. Our guide to remote work from Mexico City digs into this.

If both countries treat you as resident, the treaty's tie-breaker rules decide which country gets to treat you as resident under the treaty. For a US citizen, though, the saving clause means the IRS keeps taxing you either way [4].

How Mexico taxes residents

The SAT (Servicio de Administración Tributaria) is Mexico's IRS. Here's the lay of the land for 2026:

USD conversions use the Banco de México FIX rate of 18.7147 pesos per dollar (November 5, 2026) [11].

The RFC and getting set up

To work, invoice or file in Mexico, you need an RFC (Registro Federal de Contribuyentes), your Mexican taxpayer number. Most people also get an e.firma, the SAT's electronic signature, which you'll need for many online filings. Both come from the SAT, by appointment. See our guide to the CURP and RFC.

Who files an annual return

If you're a salaried employee of a Mexican company, your employer withholds tax from each paycheck. You only have to file an annual return if your pay for the year was over MXN 400,000 (about USD 21,000) or certain other conditions apply [3]. Freelancers, landlords and people with foreign income generally file, and many file monthly or bimonthly as well. Here's a typical order of operations for a new resident:

1. Get your RFC and e.firma from the SAT.
2. Register for the right tax regime for your activity (employee, professional services, rental income and so on).
3. Keep CFDI invoices (facturas) for deductible expenses. In Mexico, deductions need an official electronic invoice with your RFC on it.
4. File your annual return by April 30, reporting worldwide income if you're a resident [3].
5. Keep proof of the Mexican tax you paid. You'll need it for your US foreign tax credit.

How it fits with your US return

Uncle Sam taxes his citizens wherever they live. Your US return is due April 15, with an automatic extension to June 15 for people living abroad and an optional extension to October 15 [6]. Here are the two main ways to avoid double tax.

The foreign earned income exclusion (Form 2555)

If you meet the physical presence or bona fide residence test, you can exclude foreign earned income up to USD 130,000 for tax year 2025 and USD 132,900 for tax year 2026 [9]. Here's the catch for remote workers: wages for work you physically do in Mexico count as foreign earned income, even if a US company pays them. But passive income, like US dividends or rental income, doesn't qualify.

The foreign tax credit (Form 1116)

Because Mexico's rates top out at 35%, many Americans in Mexico City find the foreign tax credit works as well as, or better than, the exclusion. You claim a dollar-for-dollar credit for Mexican income tax against the US tax on the same foreign income. Excess credits can often be carried over. Which one suits you depends on your income mix, so run the numbers both ways or have a US expat tax preparer check your situation.

The US–Mexico tax treaty

The current treaty dates from 1992, with a protocol from 2002–2003 [5]. Like almost every US treaty, it has a saving clause: with certain exceptions, US treaties "do not reduce the US taxes of US citizens" [4]. In plain English, the treaty mostly protects Mexican residents with US income, not Americans in Mexico. It still matters for:

• Tie-breaker residency if both countries claim you
• Relief from double taxation, the article that requires credits for the other country's tax
• Pensions and certain other income, where specific articles apply

If you take a treaty-based position that overrides US law, you generally disclose it on Form 8833 [4].

Don't forget the reporting forms

Living in Mexico doesn't change your reporting duties. If your Mexican bank accounts, AFORE retirement account and other foreign accounts together exceed USD 10,000 at any time in the year, you file an FBAR (FinCEN Form 114) [10]. Larger balances may also mean Form 8938. Mexican mutual funds and ETFs can be PFICs, which the IRS taxes harshly, so check before you invest locally.

Social Security: no totalization agreement

Here's the gap that surprises people. The US has totalization agreements with 31 countries, which keep you from paying Social Security in two countries on the same earnings. Mexico isn't one of them [7]. The two countries signed an agreement on June 29, 2004, but it was never sent to Congress and never took effect [8].

What that means for you:

• Self-employed Americans in Mexico generally owe US self-employment tax (Schedule SE) on their net earnings, even if they exclude the income from US income tax. The exclusion doesn't cover self-employment tax, and there's no certificate of coverage to get you out of it.
• Employees sent by a US employer usually stay in US Social Security. Depending on the setup, Mexican social security (IMSS) contributions may also apply. That's a double hit with no agreement to fix it.
• Employees of a Mexican company pay into IMSS. Those years won't count toward US Social Security, and US work credits can't be combined with Mexican ones.

Collecting US Social Security while living in Mexico is fine. SSA pays benefits to US citizens in Mexico.

The bottom line

Mexico's system is very different from the IRS. The facturas, the RFC and the monthly filings for freelancers take some getting used to. Many Americans here hire a Mexican contador (accountant) for the SAT side and a US expat tax preparer for the IRS side, and make sure the two talk to each other. Our community group for Americans in Mexico is a good place to compare notes on how others handle it.

Sources

1. PwC Worldwide Tax Summaries: Mexico, individual residence (reviewed August 2026)
2. PwC Worldwide Tax Summaries: Mexico, taxes on personal income (2026)
3. PwC Worldwide Tax Summaries: Mexico, tax administration
4. IRS: Tax treaties
5. IRS: Mexico, tax treaty documents
6. IRS: US citizens and resident aliens abroad
7. SSA: US international Social Security agreements
8. Congressional Research Service: Social Security totalization agreement with Mexico (RL33015)
9. IRS: Figuring the foreign earned income exclusion
10. FinCEN: Report foreign bank and financial accounts
11. Banco de México: FIX exchange rate

Keep reading

• Remote work from Mexico City: tax and visa reality
• CURP and RFC: Mexico's ID and tax numbers
• Foreign earned income exclusion vs foreign tax credit
• Tax treaties and totalization agreements