Do I have to pay taxes to both Mexico and U.S. as a dual citizen?
Title: Do I have to pay taxes to both Mexico and U.S. as a dual citizen? 1 I'm freaking out a bit about my tax situation. I've been working in Mexico for about 14 months after finishing my bachelor's degree here. I have dual citizenship (born American but also Mexican) and I'm already paying taxes to the Mexican government on my income. The thing is, I'm making a pretty modest salary here (about 180,000 pesos annually, roughly $10,000 USD) and I just heard from a friend that I might need to file U.S. taxes too?? I honestly had no clue that I might need to file in BOTH countries. Is this true? And if so, am I going to get hit with a bunch of penalties for not filing last year? I'm really worried about having to pay taxes twice on my already tight income. Does anyone know how this works for dual citizens living abroad? Any help would be super appreciated!
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GalaxyGlider
15 Yes, as a U.S. citizen, you are required to file U.S. tax returns regardless of where you live or work in the world. The U.S. is one of the few countries that taxes its citizens on worldwide income, not just income earned within its borders. The good news is that there are provisions to prevent double taxation. The Foreign Earned Income Exclusion (FEIE) allows you to exclude up to $120,000 (for 2024 tax year) of foreign earned income from U.S. taxation. Based on your stated income of around $10,000, you would likely owe zero U.S. taxes after applying this exclusion. You may also qualify for the Foreign Tax Credit, which gives you a credit for taxes paid to Mexico. You would need to file Form 1116 along with your tax return to claim this credit.
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GalaxyGlider
Author3 Wait, so I still need to file even if I won't owe anything? What forms do I need? And am I going to be penalized for not filing last year? I'm really confused about this whole process.
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GalaxyGlider
Author15 You do need to file even if you won't owe any taxes. This is a common misconception. At minimum, you'll need to file Form 1040 (the standard individual tax return) and Form 2555 for the Foreign Earned Income Exclusion. Regarding penalties for not filing last year, the IRS is generally more lenient with taxpayers who don't owe taxes. If you didn't owe any tax (which seems likely given your income level and the FEIE), penalties would be minimal or possibly waived entirely. I would recommend filing for both years as soon as possible. The IRS has programs like the Streamlined Filing Compliance Procedures specifically designed for Americans abroad who weren't aware of their filing obligations.
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GalaxyGlider
9 I was in a similar situation when I worked in Spain for 3 years. The paperwork was driving me crazy until I found this tool called taxr.ai (https://taxr.ai) that specializes in helping expats and dual citizens with their tax situations. It guided me through all the foreign income forms and helped me understand which exclusions and credits applied to my situation. The Foreign Earned Income Exclusion saved me from double taxation, but you still have to report everything correctly. Their system flagged a few things I would have completely missed on my own, especially around FBAR requirements for foreign bank accounts (which is separate from tax filing but mandatory if you have over $10k in foreign accounts).
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GalaxyGlider
Author7 How does it handle Foreign Tax Credits vs. the Foreign Earned Income Exclusion? I've heard sometimes one is better than the other depending on your situation?
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GalaxyGlider
Author12 I'm skeptical about these online services. Does it actually work for someone with dual citizenship like OP? The Mexican tax system is completely different from the European ones.
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GalaxyGlider
Author9 The tool analyzes both options and shows you which one gives you the better outcome. In most cases, the Foreign Earned Income Exclusion is simpler and works great for lower incomes like what OP described. But for higher incomes, sometimes the Foreign Tax Credit ends up being more advantageous. It absolutely works for dual citizens - that's actually one of their specialties. They have specific modules for various countries including Mexico. The key thing is that it handles the U.S. side of reporting which is pretty standardized regardless of which foreign country you're dealing with.
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GalaxyGlider
12 Just wanted to follow up - I finally tried taxr.ai last month for my dual US/Mexican citizenship situation. It was actually super helpful! It guided me through all the FEIE forms and explained that I needed to file FBAR forms for my Mexican accounts. Turns out I was overthinking it - with my income level, I didn't owe any US taxes after the exclusions. The IRS accepted my returns with no issues, and it even helped me do a backdated return for last year. Huge relief to have this sorted out properly!
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GalaxyGlider
5 I dealt with the same issue but couldn't get the IRS to answer ANY of my questions about foreign income. I eventually used Claimyr (https://claimyr.com) to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c They basically call the IRS for you and navigate all the phone tree stuff, then call you when an agent is on the line. I spoke with an IRS representative who specialized in international tax issues and got clear guidance on my specific situation with Mexican income. The agent confirmed I needed to file but wouldn't owe additional tax due to the exclusions, and also helped me understand the process for catching up on missed filings without penalties.
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GalaxyGlider
Author22 Wait how does this actually work? So they just... call the IRS for me? I've been trying to get through for weeks!
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GalaxyGlider
Author18 This sounds like BS. Nobody can get through to the IRS these days. You're telling me this service magically gets you through when millions of people can't even get their calls answered?
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GalaxyGlider
Author5 They use an automated system that continually tries to reach the IRS until they get through. It saves you from having to sit on hold for hours or repeatedly calling when lines are busy. It's not magic - they're just using technology to solve the hold time problem. They call the IRS, wait on hold (sometimes for hours), and then once they have an agent, they conference you in. I was skeptical too until I tried it. The IRS agent I spoke with was surprisingly helpful once I actually got to talk to a real person.
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GalaxyGlider
18 I'm eating my words right now. After posting that skeptical comment, I decided to try Claimyr out of desperation - and it actually worked! Got connected to an IRS agent within 2 hours (while I just went about my day). The agent walked me through everything about my dual Mexico/US situation. They confirmed I needed to file FBAR forms for my Mexican accounts and helped me understand the Streamlined Filing Procedures for catching up on past returns without penalties. Seriously wish I'd known about this service years ago instead of stressing about this stuff.
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GalaxyGlider
11 A few important things nobody mentioned yet: 1. You'll need to convert your Mexican income to USD using the annual average exchange rate when filing your US taxes. 2. Mexico and the US have a tax treaty which helps prevent double taxation, but you still need to file in both countries. 3. The filing deadline for US citizens living abroad is automatically extended to June 15 (instead of April 15), and you can request an additional extension to October 15 if needed.
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GalaxyGlider
Author4 Does the tax treaty mean you get credit for ALL taxes paid to Mexico? Mexican social security payments too?
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GalaxyGlider
Author11 The Foreign Tax Credit typically covers income taxes paid to foreign governments, not necessarily all taxes. Mexican social security payments (IMSS) aren't usually creditable as income tax payments. However, there are specific provisions in the US-Mexico tax treaty that provide some relief. For instance, if you're paying into the Mexican social security system, you might be exempt from paying into the US Social Security system to avoid double contributions. This is covered under a "totalization agreement" between the two countries, which is separate from the tax treaty but related to your overall tax situation.
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GalaxyGlider
16 Something else to think about - if you have Mexican bank accounts with a combined value of over $10,000 USD at any point during the year, you need to file an FBAR (Foreign Bank Account Report). This is separate from your tax return and has hefty penalties if you don't comply. The deadline is April 15 with an automatic extension to October 15.
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GalaxyGlider
Author2 Does FBAR apply if you're a citizen of that country too? Like if the accounts were opened as a Mexican citizen?
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Sean Murphy
Yes, FBAR requirements apply to all U.S. citizens regardless of dual citizenship status or how the accounts were opened. The IRS doesn't care if you opened the accounts as a Mexican citizen - if you're a U.S. citizen and have foreign financial accounts exceeding $10,000 USD in aggregate value at any time during the year, you must file the FBAR. This is one of the most commonly missed requirements for Americans living abroad, and the penalties can be severe (up to $12,921 per account for non-willful violations). The key is the $10,000 threshold applies to the combined total of ALL your foreign accounts, not each individual account.
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