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Tax Tips for U.S. Citizens Living & Earning in Mexico

June 25, 2018

Two experts share some important information that is worth noting regarding both paying taxes on Mexican property rental income and U.S. tax laws for American citizens living and working in Mexico.

Puerto Vallarta, Mexico - As with other countries the Mexican government expects nationals and foreigners alike to pay taxes on income earned in the country. But Americans living in Mexico must contend with U.S. tax laws as well. Here, two experts share some important tips for U.S. citizens living and earning income in Mexico.

US Social Security & Self Employment Tax for Those Living and Working in Mexico
By Don D. Nelson, Tax Attorney

The US does not have a social security treaty with Mexico. Therefore, though you can exclude $104,100 USD of your earnings while living and working abroad as a full time resident of Mexico, that exclusion does not apply to the social security tax and Medicare tax (which is 15.3% of your net profit and is referred to as self employment tax) paid to the IRS by self employed US individuals working in Mexico. The exclusion only applies to your US income tax and not the self employment tax.

If you are a bona fide employee of a Mexican employer (or your own Mexican corporation) you do not have to pay US social security and Medicare (self-employment tax). Therefore many Americans set up their own Mexican corporation and become Mexican employees to avoid having to pay that 15.3% tax on their earnings.

Mexican social security, which must be paid if you are an employee of a Mexican corporation, is significantly lower. Remember to be a bona fide employee (as defined by the IRS) you must be treated the same and have the same withholdings and benefits as any legal employee would have under Mexican law.

If you have lived and worked in Mexico for many years and not paid US social security and Medicare, it can cause your benefits to be adversely affected. For social security benefits to accrue you must have paid the social security tax into social security for at least 10 years. Your failure to pay into US social security for at least 10 years can reduce or eliminate your eligibility for US Medicare benefits also.

You should contact social security immediately (they are very helpful) if due to your work history with foreign employers you are concerned about receiving those benefits when you retire in the USA. They can advise you on what needs to be done to solve your potential problem. You can learn more at

Don D. Nelson is both an Attorney at Law and a partner in Kauffman Nelson LLP, Certified Public Accountants. He has assisting Americans living and working in Mexico with their US taxes for over 20 years. For more information, call US Tel. 949-480-1235, Email ddnelson(at), or visit his website.

Rental Taxes in Mexico: Mexico Rental Property Owners Must Pay Mexican Taxes
By John K. Glaab, CIPS - The Settlement Company

Mexican newspapers are full of headlines about the growing problem of foreigners who are renting their homes or condominiums and failing to pay Mexican taxes. Not only is this a violation of the terms of most bank trusts (Fideicomisos), but also it is a violation of Mexican tax law and reprisals are severe.

If you own rental property anywhere in Mexico you are required to pay the following Mexican taxes:

• Mexico Income Tax

• Mexico Value Added Taxes - IVA (16%) - if the unit is furnished
IVA is paid by tenant but collected and declared by the owner.

Many non-residents of Mexico have never paid any taxes on their rental income from properties owned in Mexico. This is a violation of Mexican tax law. The Mexico tax code clearly states that these Mexican taxes must be paid on rental income from apartments, houses, and commercial property. Failure to do so can result (and has resulted) in substantial penalties and legal problems with the Mexican tax authorities.

It is now easy for you to pay these taxes and avoid problems - even if you do not have a Mexican tax identification number. The Settlement Company® has developed a simple and easy procedure which will allow you to be tax compliant on your rental income. You do not have to suffer the consequences of failing to pay. Email or call us now at 52-612-123-5056 Ext 0 to learn more and to get started.

The Good News: The IVA you pay in Mexico is deductible on your US tax return and the income taxes you pay in Mexico can offset your US taxes on the same income dollar for dollar. You will not be double taxed.

John Glaab is the Vice President of International Marketing at The Settlement Company, Mexico's oldest title and escrow company. A Certified International Property Specialist, he is a founding member of AMPI Los Cabos and Global Mexico Real Estate Institute. For more information, Email rentaltaxmexico(at), or visit