# tax liability while working online for American company



## cherylrad (Apr 30, 2013)

Okay! I have been getting great advice on this forum, and really appreciate it!
Now I have a question about tax liability. My husband and I will be working online for an American company and will have our paychecks directly deposited into our USA bank account. I have done some research and it seems that we will not also owe income taxes in Mexico. Is my understanding correct? We have temporary resident visas at this point.


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## michmex (Jul 15, 2012)

cherylrad said:


> Okay! I have been getting great advice on this forum, and really appreciate it!
> Now I have a question about tax liability. My husband and I will be working online for an American company and will have our paychecks directly deposited into our USA bank account. I have done some research and it seems that we will not also owe income taxes in Mexico. Is my understanding correct? We have temporary resident visas at this point.


Tax situations are unique for every individual or married couple. Expert advice is recommended for your situation. Since both the USA and Mexico tax individuals on worldwide income, the source of your income and your tax home are 2 important determinants as to your tax liability. The type of your visa and where you have residence(s) help to determine your "tax home".

The following link will take you to a report by Deloitte, Touche, Tomatsu entitled, "Taxation and Investment in Mexico 2012". Chapter 6, Section 1 (6.1) will give you some guidance. The report still references the prior immigration law in Mexico but will still help you to determine your residence for tax purposes.

http://www.deloitte.com/assets/Dcom...nt Guides/2012/dttl_tax_guide_2012_Mexico.pdf


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## sparks (Jun 17, 2007)

You earn money in the US and that's where you pay taxes ... nowhere else. Quite a few work online in Mexico as tourists or residents


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## TundraGreen (Jul 15, 2010)

sparks said:


> You earn money in the US and that's where you pay taxes ... nowhere else. Quite a few work online in Mexico as tourists or residents


The law is quite a bit more complex than implied by that simple statement.


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## sparks (Jun 17, 2007)

There may be more complex situations but theirs sounds pretty simple to me


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## TundraGreen (Jul 15, 2010)

sparks said:


> There may be more complex situations but theirs sounds pretty simple to me


If they are tax resident in Mexico, they will be liable for Mexican taxes on income from anywhere in the world. There will be credit for taxes paid elsewhere so they may not owe the Mexican government any money, but it is too simple to just state that you only pay US taxes on money earned from US sources.


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## PanamaJack (Apr 1, 2013)

TundraGreen said:


> The law is quite a bit more complex than implied by that simple statement.


Tundra I agree completely with what you have said. 

I am sure this comment will drawn the wrath of a few members of the forum, but I will write it nonetheless. I have been here in Mexico for 35 plus years. My entire working life. I have been a resident for more than 28 years (the seven years I was here without residency was due to being a son of a diplomat and residency was not required). Over the last five to seven years part of my annual income has been generated online through editorial I write for websites dealing with setting up businesses here in Mexico.

All of my earnings online are paid to me in U.S. through clients who send the money to my PayPal account. I then transfer that money to my bank account in the U.S. and as needed to my bank accounts in Mexico. 

Here is where members of the forum might get very upset. Those monies have never been reported as earned income on my Mexican tax returns. I report them annually on my U.S. returns, but I have an accountant who says there is a gray area in the law that allows me to earn that money free of taxes in Mexico.

*I am in no way advising the OP to do the same.* What I am attempting to do is tell the OP that each case is an individual case and needs to be addressed with an accountant. We pay accountants to preform their occupation the same as we are paid to perform ours and since I have complete confidence in my accountant, I have not problem not declaring that income in Mexico. He has worked for and with our family for over 30 years.

Those who might believe I might be breaking the law in Mexico can believe what they may, I cannot change their minds and I am not at all interested in trying to do so. 

I just want the OP to ask a tax professional what their opinion is on this matter. My thought has always been how would anyone in Mexico even know I had earned the money in the first place.


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## sparks (Jun 17, 2007)

Tundra .... So you are saying that people that work online as a "company" based in the US should have a work permit in Mexico when they are here doing the same thing here they did in the US. 

If they can be taxed here they must be legal to work here.

Somebody is trying to make this much more complicated than is necessary


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## TundraGreen (Jul 15, 2010)

sparks said:


> Tundra .... So you are saying that people that work online as a "company" based in the US should have a work permit in Mexico when they are here doing the same thing here they did in the US.
> 
> If they can be taxed here they must be legal to work here.
> 
> Somebody is trying to make this much more complicated than is necessary


I am not saying that you need a Mexican work permit to telecommute or work online for a US company. What I am saying is that the income you earn from that work is potentially liable to taxation by Mexican tax authorities. 

Mexico and the US do not yet share income records, so neither country has a very good way of knowing if someone is making money in the other country. But, as I and others have said, both countries tax your world wide income. Because of credits for taxes paid in the US, you might not owe any money to Mexico, but I would think it is a good idea to at least be aware of the potential tax liability. 

That is why I object when people make statements that "You only pay US taxes on US income, and only Mexican taxes on Mexican income". That is not the way the laws of either country read.


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## Longford (May 25, 2012)

sparks said:


> There may be more complex situations but theirs sounds pretty simple to me


I agree. Provided that none of the work done online is for companies based in Mexico or a project involving Mexico there are no taxes due Mexico in this situation, from what I understand.


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## TundraGreen (Jul 15, 2010)

Longford said:


> I agree. Provided that none of the work done online is for companies based in Mexico or a project involving Mexico there are no taxes due Mexico in this situation, from what I understand.


I give up.


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## mickisue1 (Mar 10, 2012)

Given the number of varying opinions, and the number of opinions that agree in part, but not in whole, with each other, I would advise the OP to talk to a professional on this matter.

It's a lot more complex to be a citizen of one country who lives in another, and making income from the country where one is a citizen, than the other way around.

For that situation, it's fairly straightforward: you pay taxes where you live at the rate prescribed, and your home country will determine, based on their tax code, whether, or how much you owe them.

(For an individual, it's roughly $95,000) you can earn in another country tax free, if US citizen. I have no idea what it is for a married couple.)


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## sparks (Jun 17, 2007)

This was apparently a simple situation about people working online from anywhere in the world. I see no reason to bring up all the most obscure possibilities ... unless the original poster wants to give us a complicated situation ... which we would have no answers for. 

Go to the IRS if it's not simply "working online"


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## pappabee (Jun 22, 2010)

The answer to the OP question is really very simple. You understand that you must report ANY income earned or paid in the US. So if you earned it while working for a US company or had it deposited in a US bank, then it must be reported to IRS. Taxable or not (within certain limits).

As far as taxes in Mexico go, CHECK WITH A TAX ACCOUNTANT IN MEXICO.

There are really too many differences to make a blanket statement on this forum. Unless we have a Mexican tax accountant here, find one and ask.


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## RVGRINGO (May 16, 2007)

Some folks are naive enough that they do not recognize questions that should never be asked. 
So, I will not give any answers.


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## Deendah (Jun 22, 2012)

World wide income is taxable in the country of residence. US taxes are taxable if you are a citizen of the USA, regardless of where you reside. You must file in the US and then report your income to your country of residence as I understand the law. As mentioned earlier, you may receive a tax credit on the US taxes in your country of residence. The USA is clear on defining country of residence. I reside in Canada, am a US citizen and spend 5 months a year in Mexico. I pay taxes in the US and report my US income on my Canadian taxes. Hope this helps. It is a situation where you definitely need professional advice.


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## Isla Verde (Oct 19, 2011)

Deendah said:


> World wide income is taxable in the country of residence. US taxes are taxable if you are a citizen of the USA, regardless of where you reside. . . .


Just to be clear, should your second sentence read "US taxes are payable if you are a citizen of the USA..."?


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## sparks (Jun 17, 2007)

RVGRINGO said:


> Some folks are naive enough that they do not recognize questions that should never be asked.
> So, I will not give any answers.


That says it all ... no matter how complicated anyone wants to make it


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## Longford (May 25, 2012)

TundraGreen said:


> That is why I object when people make statements that "You only pay US taxes on US income, and only Mexican taxes on Mexican income". That is not the way the laws of either country read.


Link to the laws you're referring to?


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## TundraGreen (Jul 15, 2010)

Longford said:


> Link to the laws you're referring to?


See Part VI
http://www.irs.gov/pub/irs-pdf/i2555.pdf

Here are some secondary sources, not the actual laws themselves.

Discussion US taxes on foreign (Mexican) income:
Foreign Earned Income and the IRS

Discussion of Mexican taxes on US Income (see Chapter 6):
http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/Taxation%20and%20Investment%20Guides/2012/dttl_tax_guide_2012_Mexico.pdf


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## Detailman (Aug 27, 2011)

Deendah said:


> World wide income is taxable in the country of residence. US taxes are taxable if you are a citizen of the USA, regardless of where you reside. You must file in the US and then report your income to your country of residence as I understand the law. As mentioned earlier, you may receive a tax credit on the US taxes in your country of residence. The USA is clear on defining country of residence. I reside in Canada, am a US citizen and spend 5 months a year in Mexico. I pay taxes in the US and report my US income on my Canadian taxes. Hope this helps. It is a situation where you definitely need professional advice.



Many Americans living in Canada, some of them for decades, have been surprised to learn that they are in default in not filing a US return and now face serious problems if they return to the USA. Despite the fact that they are living in Canada and earning Canadian income they must still file a US return every year despite the fact that they may not owe any US taxes.

US citizen living and earning money from work in Canada must file both a Canadian tax return and a US tax return but do not need to fear double taxation as they are given a credit for the taxes they paid in Canada which in most cases would be a higher rate than they would have paid in the US.

This has been news for several years now and has put some Americans living in Canada in a tricky situation.

Bottom line: Tundra Green and others are right. With governments nothing is simple. It is not a matter of whether you get away with it or not - it really depends on what the law is and you can only find that out from sources such as the governments themselves or tax experts that deal with international tax laws. Again: Americans lived in Canada for decades and then got caught in a catch 22 situation.

For further information: see the following sites:

Expatriate Taxation

Canada Non Resident Income Tax | Taxation for Non Canadian Residents | US Citizens Taxes

CRA Magazine

This is not a specific answer to all the replies but simply a warning that people should ask the "right parties" the right questions. If you were facing a serious criminal charge would you ask the gas station attendant for his advice? If you faced a medical crisis would you ask your coffee Barista for his advice? (Yes, some would. They are the ones that later would be going to jail or wondering why they ended up in the ER.)


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## Deendah (Jun 22, 2012)

Yup. I bad. Thanks.


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## cherylrad (Apr 30, 2013)

Thanks so much, everyone, for the great advice!


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## Detailman (Aug 27, 2011)

Deendah said:


> Yup. I bad. Thanks.


Actually I picked your post because I thought you had most things right. About the tax credits, etc. Perhaps the order was not quite right but I was not sure. You "no bad."

For income in Canada you would file a tax return in Canada and would pay Canada the taxes owing. You would then file a US Tax return, with basically the same information, and they would give you a credit for the taxes you paid in Canada. In that taxes in Canada are normally higher than US taxes the credit that the US would grant you for Canadian taxes paid would normally negate any taxes being paid to the US. Again, no double taxation due to international tax agreements.

The US, especially once they went into financial crisis just wanted to make sure that they knew what their citizens were earning "worldwide" even if they couldn't collect any more taxes.

Many Americans were simply not aware of their responsibility and after so many years of living in Canada they were surprised when the US started to get serious about this issue and some found they owed back taxes to the US because of the way they did things and now might have a problem if they try and return to the US or even get picked up going across to visit relatives in the US.

All the best to you and the rest of the posters. I presume that everyone wants to do the right thing and I simply advise that they do their research so they are not caught at some later time,

REMEMBER: "Ignorantia juris non excusat" or "ignorantia legis neminem excusat" (Latin for *"ignorance of the law does not excuse"* or *"ignorance of the law excuses no one"*) is a legal principle holding that a person who is unaware of a law may not escape liability for violating that law merely because he or she was unaware of its content. --- WIKIPEDIA


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## Mark1 (Jun 12, 2010)

*Taxation US & MX*

I don't have all the answers, but I'd like to contribute what I can. 

The first thing to remember is that the US will tax a US citizen (or Green-card holder) on world-wide income. However, and this is big, if the US citizen is foreign tax domiciled, that US citizen is entitled to a Foreign Earned Income Exclusion to approximately $100,000. (I won't get into the details.)

Establishing that you are foreign tax domiciled is not hard, but you have to know and observe the rules meticulously. You can vacation in the US; but, don't plan on spending much time in the US.

So, let's suppose you are a US citizen who is a diving instructor. Take-up residence in the Cayman Islands, work and earn $100,000. The Caymans will tax you $0.00. The US will tax you on your UN-earned income world-wide. (Interest, dividends, rent.) The US will allow you to EXCLUDE your $100k earned income earned in the Caymans. Not a bad deal. 

But, you like to be in Mexico. So, work 183 days in Caymans and vacation 182 days in Mexico. Best I can do for you. 

You are not a diving instructor. You are a telecommuter. So, it seems to me - subject to confirmation by a competent US and Mexican and Caymans tax advisor - that you sit on the beach in Caymans for 183 days and vacation in Mexico for 182 days. That just might work. 

Still not good enough? Here is my last shot. Pick some nice Central American country like Belize, Guatemala, Costa Rica. Find a country in which you can establish tax residence; but, which won't tax your income flowing from outside the country. So, that's your tax domicile. 

If you declare that Country X is your tax domicile, and Country X doesn't tax your income flowing from abroad, then, you probably will get along just fine with Country X. 

The most important thing you must do is stay out of the US for as much time as possible. Absolutely avoid doing any work while standing on US soil. 

The next most important thing you must do is avoid establishing a record that you are in Mexico for more than 182 days. 2 back-to-back 180 day tourist cards would show you are a tax resident of Mexico; so, find someplace else in the world to spend a lot of your time. Don't get an FM-2 or FM-3 in Mexico. 

Don't spend more than 182 days in any other country of the world that will tax your income. Spend 90 days in England, 90 days in France, anywhere you like. Enjoy your time in Country X as much as you can. Enjoy your time in Mexico <= 182 days as much as you can. 

If you like the East coast, split your time between Belize and Mexico. If you like the West coast, split your time between Guatemala and Mexico. Something along these lines might work for you. 

Mark


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