7

Similar to this question, but I'm a U.S. citizen who is moving to Mexico, but retaining my U.S. citizenship and employment. I will be in Mexico on a Temporary Residency visa (good for one year, renewable up to 4 years, then convertible to Permanent Residency).

Where must I pay taxes?

I could easily not change anything, and continue to pay U.S. taxes, which are currently withheld from my paycheck as normal, etc.

But I suspect this isn't the correct way to do things.

9

But I suspect this isn't the correct way to do things.

You should be paying taxes in the US (you're a US resident by citizenship) and Mexico (you're probably a Mexican resident for tax purposes).

There's a tax treaty between the US and Mexico, that will probably affect you. In addition you should remember the foreign income exclusion and foreign tax credit, FBAR and FATCA obligations, and various differences in taxation (for example owning a Mexican condo trust may cost dearly in US tax reporting - or not, that's a new thing).

I suggest talking to a CPA proficient in US & Mexican tax issues, you can find plenty of those in the Southern States (CA, AZ, NV, NM, TX etc).

2

@littleadv has good advice here.

You most likely owe taxes to both countries, but the question is "how much?"

I have this to add:

IRS Publication 54 is about the US taxes of Americans living overseas.

In particular, Chapter 2 covers the topic of employer withholding, and mentions a Form 673 you might be able to file with an employer to reduce withholding if you are in fact eligible for the large Foreign Earned Income Exclusion that exists in the understanding that living in a foreign country means you pay foreign taxes already. Basically you need to be able to prove that you really live in a foreign country and pay taxes there, as opposed to merely owning property or being a visitor there. An alternative way to qualify is to spend 330 days per year in a foreign country.

Here is a relevant excerpt of the IRS publication:

Income Tax Withholding

U.S. employers generally must withhold U.S. income tax from the pay of U.S. citizens working abroad unless the employer is required by foreign law to withhold foreign income tax.

Foreign earned income exclusion. Your employer does not have to withhold U.S. income taxes from wages you earn abroad if it is reasonable to believe that you will exclude them from income under the foreign earned income exclusion or the foreign housing exclusion.
Your employer should withhold taxes from any wages you earn for working in the United States. Statement. You can give a statement to your employer indicating that you expect to qualify for the foreign earned income exclusion under either the bona fide residence test or the physical presence test and indicating your estimated housing cost exclusion. Form 673 is an acceptable statement. You can use Form 673 only if you are a U.S. citizen. You do not have to use the form. You can prepare your own statement. See a copy of Form 673, later.
Generally, your employer can stop the withholding once you submit the statement that includes a declaration that the statement is made under penalties of perjury. However, if your employer has reason to believe that you will not qualify for either the foreign earned income or the foreign housing exclusion, your employer must continue to withhold.
In determining whether your foreign earned income is more than the limit on either the foreign earned income exclusion or the foreign housing exclusion, if your employer has any information about pay you received from any other source outside the United States, your employer must take that information into account.

  • Or just put huge allowances on W4 and be done with that. Why do complicated things when there are simple options? – littleadv Jun 18 '13 at 22:05
  • That might work too, as long as it is reasonable. It might be difficult to get down to zero withholding without ticking the old "exempt" box, and at that point questions certainly can be raised about whether someone is really "exempt" so may as well fill out a form that lays out the reasoning. – Paul Jun 19 '13 at 3:13
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i would say, that your taxes are gonna be paid to the country where they were generated from, meaning, if your income comes from USA work and gets deposited into a USA account, you should pay those taxes to USA gov, if you so services in mexico for a mexican client, whos paying you in pesos or deposited into a mexican back account , you should pay ISR taxes thats the tax for incomme and maybe some IVA, also if you pay mexican taxes, you may get taxes reinvolsed since some of your staff would be paid in dollars, just dont forget to ask a mexican invoice to your tax identification number

  • 2
    This answer seems fairly misguided (see great answers already posted with references) - please reconsider whether you should be providing tax advice if you are not confident of the answer. – Grade 'Eh' Bacon Nov 2 '17 at 19:44

protected by Dilip Sarwate Nov 2 '17 at 19:38

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