US Taxes for Americans in Mexico City: FBAR, FEIE & Catching Up (2026 Guide)

Mexico holds the largest population of US citizens living outside the United States, and the community around Roma, Condesa, Playa del Carmen, and Tulum keeps growing. Almost every one of them shares the same quiet worry: "I live in Mexico now — am I still supposed to be filing US taxes?" The short answer is yes, and the longer answer is that with the right elections you often owe little or nothing.

As an Enrolled Agent I help Americans abroad get compliant without panic, and I help Mexican founders set up the US structures they need to get paid by American clients. This guide covers both, in plain English. It is general information, not individual tax advice.

Yes, you still file — US taxation follows the passport

The United States taxes its citizens and green-card holders on worldwide income no matter where they live. Moving to Mexico City does not end your US filing obligation; it just changes which forms and elections you use.

This surprises people in groups like "Foreigners in Mexico City" and "Expats in Playa del Carmen" every filing season. The good news is that the tax code gives Americans abroad powerful tools so that filing rarely means paying twice. The bad news is those tools only work if you actually file to claim them.

The FEIE and the Foreign Tax Credit: how you avoid double tax

Two mechanisms keep most expats from being taxed by both countries. The Foreign Earned Income Exclusion (FEIE) lets you exclude a large band of earned income if you meet either the physical-presence test (330 full days abroad in a 12-month window) or the bona-fide-residence test. The Foreign Tax Credit (FTC) instead gives you a dollar-for-dollar US credit for income tax you paid to Mexico's SAT.

Which one is better is a real decision, not a coin flip. For salaried workers paying Mexican tax, the FTC often wins and can even build carryover credits; for location-independent earners paying little Mexican tax, the FEIE usually wins. Choosing badly — or defaulting to the FEIE out of habit — can cost you thousands.

Your RFC and Mexican filings do not replace any of this. Mexico taxing you does not exempt you from the US return; it only feeds the credit you claim on it.

FBAR and FATCA: the Mexican bank accounts you must report

If your Mexican bank and investment accounts together crossed $10,000 at any point in the year — even for a single day — you must file an FBAR (FinCEN Form 114). This is an information report, not a tax, but the penalties for skipping it are severe and separate from anything you owe.

A higher threshold under FATCA can add Form 8938 to your return. Mexican banks report US-linked account holders under intergovernmental agreements, so the IRS increasingly already knows the account exists. Reporting it is almost always the cheaper path than hoping it stays invisible.

Behind on filing? The streamlined catch-up path

Most Americans I meet in Mexico are not tax cheats — they simply did not realize the obligation continued after they left, and now they are two, three, or five years behind and afraid to surface. For non-willful cases, the IRS Streamlined Foreign Offshore Procedures were built for exactly this.

The streamlined program generally has you file the last three years of returns and six years of FBARs, along with a statement explaining the non-willful reason you fell behind. Done correctly, it typically resolves the back-filing without the stacked penalties people fear. Done carelessly — or used when the facts are actually willful — it can make things worse, which is why I assess the facts before anyone files.

The other Mexico story: founders who need a US company

Mexico is not only a home for American expats; it is home to a fast-growing base of founders, agencies, and e-commerce sellers who want to bill US clients and sell on US platforms. For them the question flips: not "do I still owe US tax," but "how do I get inside the US system in the first place?"

A Mexican founder does not need a US SSN or a green card to own a US company. You can form a US LLC — usually Wyoming or Delaware for a non-resident — obtain an EIN from the IRS, and use that entity to open US business banking and connect Stripe, PayPal, or Mercury. That is what turns "I can't accept US card payments" into "I invoice like a US vendor."

US LLC + EIN without an SSN, and the filing you can't forget

The order is entity first, then EIN (a non-US applicant with no SSN applies on Form SS-4 by fax or phone), then US banking and payments. An EIN is a business number — it does not by itself make you a US taxpayer.

But a US LLC owned by a non-resident carries a hard annual duty: a foreign-owned single-member LLC generally must file Form 5472 with a pro-forma 1120 every year, and the late penalty starts at $25,000 automatically. Add the federal BOI report and any state annual report. This is the compliance the $99 formation sites never mention, and it is the reason a founder should have an Enrolled Agent on the structure, not just a registered agent.

Tulum, PDC, and the digital-nomad reality

The Riviera Maya crowd tends to be the most exposed, because location-independent income feels like it belongs to nowhere. It doesn't. If you are a US person, that income is US-taxable wherever your laptop sits, and FEIE eligibility depends on carefully counting your days — a few too many trips back to the States can quietly break the 330-day test.

If you are a non-US nomad running a store or agency from Tulum, the US LLC route can still make sense purely for payment access — but the same Form 5472 and BOI duties apply. Either way, the worst position is the middle one: earning through US platforms while filing nothing.

The US–Mexico treaty, totalization, and the self-employment tax surprise

Unlike Colombia, the United States and Mexico do have an income tax treaty, and they also have a totalization agreement that coordinates social-security taxes. That second agreement matters more than people expect. A self-employed American in Mexico can otherwise owe US self-employment tax of roughly 15.3% on net profit — a tax the FEIE does not touch, because the exclusion only removes income tax, not self-employment tax.

The totalization agreement can, in the right circumstances, let you pay into one country's system instead of both, but it is not automatic and it requires the correct paperwork. This is one of the most common six-figure-earner mistakes I see: the return excludes the income under the FEIE, the taxpayer assumes the bill is zero, and then the self-employment tax lands anyway.

The treaty also affects how specific income types — pensions, dividends, and certain gains — are taxed between the two countries. None of it is intuitive, and the default software answer is frequently the wrong one for someone living cross-border.

Choosing your US state and keeping the entity alive

For the founder audience, the state you form in is a real choice, not a formality. Wyoming is popular for low cost and privacy; Delaware for its predictable business law and investor familiarity; New Mexico for its low maintenance. Each has its own annual report and fee, and the entity dies quietly if you ignore them.

Whichever you pick, a non-resident needs a US registered agent in that state and a real system for the annual federal and state filings. The founders who run into trouble are almost never the ones who set it up wrong — they are the ones who set it up right and then forgot it existed for two years.

Frequently asked questions

Do I have to file US taxes if I live in Mexico?

Yes. US citizens and green-card holders file on worldwide income regardless of country. With the FEIE or Foreign Tax Credit you often owe little or nothing, but you must file to claim those benefits.

Which is better, the FEIE or the Foreign Tax Credit in Mexico?

It depends on how much Mexican tax you actually pay. Salaried workers paying SAT tax often do better with the Foreign Tax Credit; low-tax location-independent earners often do better with the FEIE. It is worth modeling both.

Do I need to report my Mexican bank account to the US?

If your foreign accounts totaled over $10,000 at any point in the year, yes — you file an FBAR, and possibly Form 8938. It is an information report, but the penalties for omitting it are steep.

Can a Mexican citizen open a US LLC and Stripe account?

Yes. No SSN is required to own a US LLC or get an EIN. Non-residents typically form in Wyoming or Delaware, obtain an EIN by fax, then open US banking and Stripe.

I haven't filed in years since moving to Mexico — am I in trouble?

Usually this is fixable. The streamlined procedures are designed for non-willful late filers abroad and generally resolve back years without stacked penalties, but an Enrolled Agent should confirm you qualify first.

Related reading: how the Foreign Tax Credit saves you when there's no treaty, the streamlined path back, and taxes for e-commerce and dropshipping sellers. You can also download our free tax organizers to get organized before we talk.

Talk to an Enrolled Agent

This article is general information, not individual tax advice. If you want to talk through your specific situation, book your free review, or call or text (323) 900-0305.