If You Make Money in the US but Live in Mexico, How Do You Pay Taxes?

The United States is one the most popular destinations for expats around the world. With an average of 40 million international migrants living in the country, it is one of the most multicultural nations. Due to its favorable business environment and highly skilled workforce, countless numbers of foreigners choose to make America their home. Despite its popularity, the United States does not offer a residency status to foreign nationals and there are numerous tax implications international workers need to understand.

Migration And Taxes

Migration is rampant in the United States as more than 3.5 million people move between states each year. This is in addition to the more than 1 million international migrants who live and work in the country. The flow of people across state lines has led to a significant increase in business opportunity and economic development for those cities and regions which promote and welcome people from across the country and the world. However, with all of this cross-border activity, the IRS collects a significant amount of revenue which could be attributed to the migrant workers. If you are one of the millions of international migrants who call America home, how much do you actually need to pay in taxes? Let’s take a look.

How Much Money Do You Actually Make?

Whether you are a green card holder or have temporary residency in the country, you need to understand how to report your earnings from your job. While most jobs are easily reportable, there are certain occupations such as construction and farming where you might not want to report your income. If you belong to this category, you can possibly avoid paying taxes on some of your earnings.

The Foreign National And Interstate Tax Credit

The fact you are not a U.S. citizen does not exempt you from having to pay federal income taxes in America. Every person, including non-residents, are liable for taxes on their worldwide income. If you earn income from a job in Mexico that is more than 183 days in a year, you are eligible to take the foreign national and interstate tax credit. Essentially, this credit allows you to exclude up to $25,000-$50,000 in business income per year from your taxable income. In addition to this, you will avoid paying any taxes on the first $3,000 of profit from your small business. To claim this credit, you must fill out a form VR-28, Application for Reduced Taxation Due to Alien Resident Status. There is no deduction for social security or Medicare taxes. You also need to prove you paid all your personal expenses while in the United States. Failure to do so may result in an IRS audit of your taxes.

How Does Resident Status Impact My Job?

Being an alien or a non-citizen of the United States does not necessarily disqualify you from working in the country. In fact, it is quite the opposite. If you are not a citizen but have permanent residency in the United States, you are entitled to all of the same employment opportunities as other Americans. However, you will want to be mindful of any potential taxes you owe. Permanent residents with children must file a tax return even if they did not earn a significant amount of income in the previous year. The fact you are a parent in the USA gives you an automatic tax advantage as most social security and Medicare taxes are completely tax deductible. Despite this, residents and non-citizens must file a return in any case even if they did not earn a significant amount of income in the previous year.

The Foreign Earned Income Exclusion

If you are a qualified expatriate and have lived abroad for more than a year, you can exclude from your income any money you earn from a foreign country. To qualify for this exclusion, you must have permanent residency in a developed country other than the United States. Because this is a special tax provision, you should consult an accountant or tax attorney to ensure you are claiming it correctly. Many nationalities are eligible for this exclusion including Australian citizens, Canadian citizens, and people from most of the industrialized nations. While this exclusion offers valuable benefits, it also has some significant restrictions. First, only those who report their income abroad can benefit from this exclusion. You cannot claim this exclusion if you are a U.S. citizen or have permanent residency in the United States. In addition, you cannot claim this exclusion if you have previously filed a tax return in a foreign country. Finally, you cannot claim this exclusion if your income is above $300,000 per year. For more information on this topic, visit the IRS webpage on the Foreign Earned Income exclusion or contact us at jay@jayfords.net.

Are There Any Limitations On How Much I Can Earn?

If you are a qualified expatriate and have lived abroad for more than a year, you are not entirely free to work in any country you please. To be eligible for a tax exemption or a reduced tax rate as a non-citizen, you must maintain a certain amount of income in comparison to other Americans. The IRS sets this limit as 3% of your annual income. In other words, if you earn $40,000 per year, you will not be able to earn more than $12,000 per year and still claim a tax exemption. In general, you can work in pretty much any country you please as long as you maintain your residency abroad but there are restrictions on how much you can earn and how long you can stay in a given country. For example, if you are a citizen of the Philippines and recently visited the United States on a vacation, you will want to get a refund for any income you earned while in the country before you travel abroad again. Contact us at jay@jayfords.net if you need help with this or any other matter relating to your expatriate status

As you can see, taxes can be a complicated subject for those who are not familiar with U.S. tax law. Due to its vast cross-border activity, lots of paperwork, and steep tax obligations, it is important to seek the help of an experienced accountant or tax lawyer if you want to understand how much you owe and how much you can claim.