US–Mexico Cross-Border Tax 2026: Treaty Withholding, Americans in Mexico and Mexicans in the US
The US–Mexico corridor is one of the busiest cross-border tax situations in the world: American retirees and remote workers settling in Mexico, Mexican professionals working in the US, and investment flowing both ways. The 1992 US–Mexico income tax convention (as amended) plus each country's domestic rules decide who taxes what. Here is the 2026 map.
The treaty in one table
| Payment (Mexico ↔ US) | Treaty withholding rate |
|---|---|
| Dividends, general | 10% |
| Dividends, beneficial owner is a company owning directly ≥10% of voting stock | 5% |
| Interest, general | 15% |
| Interest, bank/insurance-company loans and regularly traded bonds/securities | 4.9% |
| Interest, bank-paid interest and seller-financed machinery/equipment | 10% |
| Royalties, all types | 10% |
(Treaty articles 10, 11 and 12 of the US–Mexico convention; the IRS publishes the full treaty text.) Domestic law can withhold at higher rates — the treaty caps apply when the recipient qualifies and claims them, usually with a residency certificate (Mexico's constancia de residencia).
Americans living in Mexico
Moving to Mexico does not end your US tax obligations. The US taxes citizens on worldwide income wherever they live. Three pillars of compliance:
1. File every year, claim the Foreign Earned Income Exclusion (FEIE) or credits. For tax year 2026 the FEIE maximum is $132,900 per person (Rev. Proc. 2025-32; 2025 was $130,000), available via the bona fide residence or physical presence test. Alternatively, claim the Foreign Tax Credit for ISR paid to Mexico — often better if Mexican tax exceeds the US tax on the same income.
2. FBAR. If your aggregate foreign (non-US) accounts exceed $10,000 at any time during the year — across all accounts combined, not per account — file FinCEN Form 114 by April 15 (automatic extension to October 15, no request needed). Mexican bank, brokerage and even some fintech balances count.
3. FATCA Form 8938 may also apply at higher thresholds, and Mexican mutual funds or ETFs can be PFICs — punitive US tax treatment that surprises many expats.
On the Mexican side, settling with a casa habitación (established home) in Mexico makes you a Mexican tax resident on worldwide income (Article 9, Federal Fiscal Code) — the treaty tie-breaker then decides which country gets first taxing rights on specific income types, with the other giving relief.
Social security warning: there is no US–Mexico totalization agreement in force. One was signed in 2004 but never ratified, so cross-border workers cannot combine coverage periods — plan for potential double contributions.
Mexicans working in or moving to the US
US tax residency for a Mexican national hinges on the green card test (lawful permanent resident at any time during the year) or the substantial presence test: present ≥31 days in the current year AND a weighted 3-year total of ≥183 days (100% of current-year days + 1/3 of prior-year days + 1/6 of days two years back). Hit either test and you are a US resident alien taxed on worldwide income.
TN visa holders (the USMCA professional visa) are typically nonresident aliens in their first partial year — but multi-year TN workers often trip the substantial presence test in year two. Track your days from arrival.
Mexican-source income of a US resident (rental income from a Mexico City condo, Mexican dividends) is still taxable in the US, with the treaty capping Mexican withholding (table above) and the US Foreign Tax Credit relieving double tax.
FEIE vs Foreign Tax Credit: an illustration
Which is better — excluding $132,900 of earnings or crediting Mexican tax paid? It depends on the income mix. Consider an illustrative example (round numbers, not anyone's actual return): a US citizen in Mexico earns the equivalent of US$100,000 in salary and pays about US$18,000 of Mexican ISR on it.
- FEIE route: exclude the $100,000 (under the $132,900 cap), owe ~$0 US tax on the salary. Simple — but the exclusion does not cover non-earned income, and using it can complicate IRA contributions and the additional Medicare tax math.
- Credit route: report the $100,000, compute US tax (~$14,000 at illustrative rates), then credit the $18,000 of Mexican tax — wiping out the US liability and leaving excess credit to carry forward.
When Mexican tax on an income stream exceeds the US tax on it, the credit usually wins and preserves IRA eligibility; when US tax would be higher (or income is modest), the FEIE's simplicity wins. Run both each year — the answer flips with exchange rates and income mix.
Estate and gift notes
The US–Mexico estate/gift situation is thinner than the income treaty. US citizens remain subject to US estate tax on worldwide assets (the 2026 federal exemption is historically high under current law — confirm the current figure before planning). Mexico has no federal estate or inheritance tax, though some states and notarial/transfer costs apply on Mexican property. Cross-border families should plan with both systems in view.
Next steps
- Americans in Mexico: calendar the FEIE vs. Foreign Tax Credit analysis each year — the better answer flips with income mix. Never skip the FBAR; penalties start at $10,000 per violation.
- New arrivals in Mexico: determine your Mexican residency date (casa habitación) and file the SAT notice — it drives your worldwide reporting from that point.
- Mexicans entering the US: count substantial-presence days from day one, and claim treaty withholding rates on Mexican-source payments with proper documentation.
- Cross-border workers: with no totalization agreement, model social security costs in both countries before accepting an assignment — there is no combining of credits.