# The IRS and Americans in Mexico



## FHBOY (Jun 15, 2010)

[To more senior posters: If this topic has been discussed before, please direct me to the thread, I do not want to re-hoe the row. Thanks.]

OK - I have two questions that will probably need professional answers from American or Mexican CPA or attorneys, so of course I'll ask all you guys first, (makes sense to me, doesn't it?) 

Social Security: What is the best way to receive it, [other than getting more mature], and what are the tax liabilities for Americans - as they pertain to the IRS - living in Mexico? What forms, if any, will we have to fill out, what will we have to file? Will FMM's [immigrado or non-immigrado] have any liabilities in Mexico, by Mexico for the funds?

Private Pensions, Annuities, 401K, etc. - Basically the same questions. If you would have had some tax liability for them in the US, does that continue in Mexico as it pertains to the IRS, and is there a good route to minimize the impact?


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## DNP (May 3, 2011)

Talk to a CPA, as is your plan.

As a U.S. citizen, you must continue to file a tax return with the U.S. IRS each year, regardless of whether you think (or know) you won't have to pay any taxes, or if you have lived outside the U.S. for a portion of the year, or for the entire year. You gotta file. If you don't file on time, however, you will pay a late-filing penalty and be charged interest on any taxes owed.

If you want to jump start the process about learning more about this, call the IRS, tell them what you want to find out. They're actually very good and very helpful at this. You will be surprised. You don't have to given them your name, SS number, or anything else. They won't even ask you for those things.



FHBOY said:


> [To more senior posters: If this topic has been discussed before, please direct me to the thread, I do not want to re-hoe the row. Thanks.]
> 
> OK - I have two questions that will probably need professional answers from American or Mexican CPA or attorneys, so of course I'll ask all you guys first, (makes sense to me, doesn't it?)
> 
> ...


WashDC/SMA


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## DNP (May 3, 2011)

I should have added: if you're due a refund, you may not (probably won't) get it unless and until you file.

WashDC/SMA


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## joaquinx (Jul 3, 2010)

> As a U.S. citizen, you must continue to file a tax return with the U.S. IRS each year, regardless of whether you think (or know) you won't have to pay any taxes, or if you have lived outside the U.S. for a portion of the year, or for the entire year. You gotta file. If you don't file on time, however, you will pay a late-filing penalty and be charged interest on any taxes owed.


Not necessarily. If you don't have the minimum income plus a few other items, you don't have to file. IRS can give you the details. 

One item regarding Social Security is continue to inform SS that your address is in the US. If you tell them that you are living in Mexico, they will send you a form every year that you must fill out and return by mail. If you don't, they can suspend you check or direct deposit.


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## DNP (May 3, 2011)

Technically, you are correct.

Here it is:

http://www.irs.gov/newsroom/article/0,,id=105097,00.html



joaquinx said:


> Not necessarily. If you don't have the minimum income plus a few other items, you don't have to file. IRS can give you the details.


WashDC/SMA


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## makaloco (Mar 26, 2009)

joaquinx said:


> One item regarding Social Security is continue to inform SS that your address is in the US. If you tell them that you are living in Mexico, they will send you a form every year that you must fill out and return by mail. If you don't, they can suspend you check or direct deposit.


That's no big deal, you just fill it out and mail it in. IRS and SS have my Mexico address, as I'm a full time resident with my primary (only) home here. I applied for SS by phone with the benefits unit of the consulate in Guadalajara, and my payments are direct deposited in my Mexican bank account. It has been working fine for the past two years. Some folks prefer to have their payments deposited in the US, which is also no problem. It mainly depends on where you need the money.

I have an IRA and a 403b in the US and pay US taxes on funds I withdraw. That doesn't change even though I live full time in Mexico. As others have mentioned, you need to check with IRS for your situation. Internal Revenue Service online is a good place to start, especially the section for international taxpayers. My understanding is that Mexico doesn't tax income from pensions and retirement funds, and that's the only kind of income I have, but you also need to check that for your own situation.


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## conklinwh (Dec 19, 2009)

As expect you picked up, the IRS wants their money regardless of location. In fact, I believe that along with Eritrea the US is one of only two countries that tax their citizens total income.
We have pension & social security direct deposited in the US and then move down as necessary or good exchange rate. Only Mexican tax that we pay is on bank interest and then we take as credit on US form.
Living outside the US, you do get an automatic filing extension but that doesn't cover penalties for underwithholding when you do file.


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## Bevdeforges (Nov 16, 2007)

Before you go blowing your hard earned money on tax preparers, accountants or attorneys, download Publication 54 from the IRS website. It's not the most exciting read, but it does a pretty good job of explaining taxes for a US citizen living outside the US.

Social Security is taxed exactly as it would be if you were living in the US. I.e. it usually depends on any other sources of income you have. The one big "gotcha" is if you are married to a "non-resident alien" and thus have to file as "married filing separately" they tax you on most of it. But that's a function of your filing status, not of living overseas.

Having your SS direct deposited to your Mexican bank account is probably the simplest way to do things, since the US consulate handles the whole transfer and conversion of funds and thus gets a far better exchange rate than you could get on your own.

Contact the US consulate SS office about six months before you turn 65 (even if you can't claim full SS benefits until later). They'll get you signed up (for Medicare, too, if you qualify - there's one part of Medicare coverage that is free - the other parts probably aren't worth signing up for unless you plan on returning to the US for medical care and prescriptions).

On private pensions or IRAs/401ks/etc, again, you pay the IRS just like you would if you were living in the US. There is probably a tax treaty between the US and Mexico to deal with double taxation. Usually, if you must declare foreign pensions on your local tax declaration, there is some method of either giving you credit for the tax you've already paid in the US, or exempting the pension from taxation where you live. (Someone who pays taxes in Mexico will have to explain how it works there.)
Cheers,
Bev


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## TundraGreen (Jul 15, 2010)

conklinwh said:


> ...In fact, I believe that along with Eritrea the US is one of only two countries that tax their citizens total income....


Disclaimer: I am not a tax attorney or specialist. I have read about this subject and tried to understand the rules and the following represents my current understanding of the laws. I welcome corrections from someone more knowledgeable.

Actually, many countries, including the US, Canada and Mexico, tax the worldwide income of people resident in that country. Where the US differs, is that it taxes worldwide income of citizens even if they are non-resident in the US. Other countries, like Mexico and Canada, for example, only tax the income within the country for citizens living outside the country. 

To clarify, consider four cases: 
A) US citizen resident in the US with income from both US and Mexican sources.
B) US citizen resident in Mexico with income from both US and Mexican sources.
C) Mexican citizen resident in the US with income from both US and Mexican sources.
D) Mexican citizen resident in Mexico with income from both US and Mexican sources.

A) will owe US taxes on US and Mexican income and Mexican taxes on Mexican income, with credits for taxes paid elsewhere.
B) will owe US taxes on US and Mexican income and Mexican taxes on US and Mexican income, although there are foreign earned income exclusions and credits for taxes paid elsewhere.
C) will owe US taxes on US income and Mexican taxes on Mexican income.
D) will owe Mexican taxes on US and Mexican income and US taxes on US income with credits for taxes paid elsewhere.

Useful link: Mexico Taxes in Mexico: Individual Income Tax


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## joaquinx (Jul 3, 2010)

Bevdeforges said:


> Having your SS direct deposited to your Mexican bank account is probably the simplest way to do things, since the US consulate handles the whole transfer and conversion of funds and thus gets a far better exchange rate than you could get on your own.


This sounds too good to be true. If I have the US consulate handle/set up my direct deposit to my Mexican bank account, I get a better exchange rate. Do I understand this correctly? Are you saying that I would get a better exchange rate via the direct deposit rather than going to a fee-free ATM and withdrawing funds from my US bank?


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## DNP (May 3, 2011)

conklinwh said:


> ...I believe that along with Eritrea the US is one of only two countries that tax their citizens total income.file.


I'm only taxed on my taxable income in the US, not my total income. My taxable income is lower than my total income.

WashDC/SMA


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## pappabee (Jun 22, 2010)

*Taxable income*

I think we need to define a few terms. According to the IRS.gov web site

"Generally, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but is not taxable. A list is available in Publication 525, Taxable and Nontaxable Income." 

The IRS wants you to report ALL income but will tax only that part that is considered "taxable" according to pub 525. So in truth the government does not tax your entire income but merely wants you to report it all. 

In other words, throw everything into the pot and they'll take what they want.


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## Bevdeforges (Nov 16, 2007)

joaquinx said:


> This sounds too good to be true. If I have the US consulate handle/set up my direct deposit to my Mexican bank account, I get a better exchange rate. Do I understand this correctly? Are you saying that I would get a better exchange rate via the direct deposit rather than going to a fee-free ATM and withdrawing funds from my US bank?


Yup. And you don't have to find a fee-free ATM. The consulate transfers your social security into your local bank account in local currency. 
Cheers,
Bev


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## joaquinx (Jul 3, 2010)

Bevdeforges said:


> Yup. And you don't have to find a fee-free ATM. The consulate transfers your social security into your local bank account in local currency.
> Cheers,
> Bev


Bev, I believe that you are confusing Direct Deposit to your foreign bank account with signing up at the consulate for SS and Direct Deposit. The SS comes directly from the US Treasury via a few banking institutions to your local bank. The consulate does not play a part aside from signing you up.


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## conklinwh (Dec 19, 2009)

If you are a US citizen then all taxable income whether from US or foreign sources is subject to US taxes and must be declared.


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## TundraGreen (Jul 15, 2010)

conklinwh said:


> If you are a US citizen then all taxable income whether from US or foreign sources is subject to US taxes and must be declared.


And to add to that, if you meet the qualifications for being considered resident in a foreign country by the IRS, there is a foreign earned income exclusion that allows you to exclude all of your foreign income up to a limit that is inflation adjusted ($91,400 for 2009, $91,500 for 2010, $92,900 for 2011).


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## conklinwh (Dec 19, 2009)

I guess the key word is earned income, which excludes interest & dividends. I only have interest income in Mexico which is directly taxed and then I take that tax as credit on US form when report the interest.


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## Bevdeforges (Nov 16, 2007)

joaquinx said:


> Bev, I believe that you are confusing Direct Deposit to your foreign bank account with signing up at the consulate for SS and Direct Deposit. The SS comes directly from the US Treasury via a few banking institutions to your local bank. The consulate does not play a part aside from signing you up.


Perhaps it is done differently in Mexico, but in France, the direct transfer of social security benefits to local bank accounts is handled by the consulate in Paris. It may be a matter of the difference in the banking systems.
Cheers,
Bev


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## joaquinx (Jul 3, 2010)

Bevdeforges said:


> Perhaps it is done differently in Mexico, but in France, the direct transfer of social security benefits to local bank accounts is handled by the consulate in Paris. It may be a matter of the difference in the banking systems.
> Cheers,
> Bev


Bev, I guess that your right and Social Security Admin is wrong.


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