An American who retires in Mexico usually answers to both tax systems, and the 1992 US–Mexico tax treaty decides which one goes first. US Social Security is taxable only by the United States. Private pensions and 401(k) payouts go to Mexico first, with the IRS crediting the Mexican tax. The foreign earned income exclusion covers none of it.
The treaty was signed in Washington on 18 September 1992 and has applied to most income since 1 January 1994. It is short on retirement income — one article on pensions and annuities, one on government service — but those two articles, read with the saving clause in Article 1, settle almost every question a retiree asks. The table sets out the result for a US citizen living in Mexico.
| Income | Treaty rule | Who taxes first | What the IRS does |
|---|---|---|---|
| US Social Security | Art. 19(1)(b), kept by Art. 1(4)(a) | United States only | Taxes up to 85% of benefits |
| Private pension or 401(k) payout | Art. 19(1)(a) | Mexico | Taxes it and credits the Mexican tax |
| Commercial annuity | Art. 19(2) | Mexico | Taxes it and credits the Mexican tax |
| US federal, state or local pension | Art. 20(2) | United States | Taxes it |
| Any pension, under the FEIE | 26 U.S.C. 911(b)(1)(B)(i) | Not applicable | No exclusion — pensions are not earned income |
Does Mexico tax US Social Security?
No. Article 19(1)(b) of the convention makes Social Security paid by the United States to a resident of Mexico, or to a US citizen, taxable only in the United States. Article 1(4)(a) lists paragraph 1(b) among the benefits the saving clause cannot override, so Mexico’s right to tax its own residents does not reach the benefit.
That is not the same as tax-free. The IRS still taxes the benefit under 26 U.S.C. 86, which brings up to 85% of benefits into income once combined income passes the base amount — $25,000 for a single filer and $32,000 on a joint return. IRS Publication 915 lists the countries whose US-citizen residents are exempt from US tax on their benefits: Canada, Egypt, Germany, Ireland, Israel, Italy, Romania and the United Kingdom. Mexico is not on it. The treaty moves the benefit out of Mexico’s reach; it leaves it inside the IRS’s.
Who taxes a 401(k) or private pension paid to a retiree in Mexico?
Mexico taxes it first, and the IRS gives a credit for the Mexican tax. Article 19(1)(a) makes “pensions and other similar remuneration” paid in consideration of past employment taxable only in the country where the retiree lives. For a US citizen, the saving clause in Article 1(3) lets the United States tax its citizens “as if the Convention had not come into effect”, so both countries tax the same payment.
Article 24(4) then puts the two claims in order. Mexico credits only the US tax the United States could have charged a non-citizen under the treaty, which for a pension is nothing. The United States credits the Mexican tax against its own, and paragraph (c) treats the income as arising in Mexico to the extent needed for that credit to work. The IRS handles re-sourced income on a separate Form 1116 with its own limitation.
Annuities follow the same pattern: Article 19(2) makes an annuity taxable only in the recipient’s country of residence. The treaty text names neither IRAs nor Roth accounts. Its words are “in consideration of past employment”, and an account funded by personal contributions is not named in those terms, so how Mexico classifies an IRA payout rests on Mexican law rather than on the treaty.
How are federal, state and teacher pensions treated?
A US government pension is taxable only in the United States under Article 20(2), which covers pensions paid by a Contracting State “or a political subdivision or a local authority thereof” for past government service. The one stated exception is a retiree who is both a resident and a national of Mexico, whose pension is then taxable only in Mexico.
The protection has a condition for US citizens living in Mexico. Article 1(4)(b) carries the Article 20 rule past Mexico’s saving clause only for individuals who are “neither citizens of, nor lawful permanent residents in” Mexico. The treaty does not define that phrase for Mexico, and a retiree who holds Mexican permanent residence is the case its wording leaves open.
When does Mexico treat an American retiree as a tax resident?
Mexico treats a person as resident once they have established their home — casa habitación — in Mexico, under Article 9 of the Código Fiscal de la Federación, as published with its latest reform of 9 April 2026. A resident is taxed on worldwide income under Article 1 of the Ley del Impuesto sobre la Renta, wherever the income arises.
Where a retiree keeps a home in both countries, Article 9 looks to the center of vital interests, and names two cases among others: more than 50% of the year’s income coming from Mexican sources, or the main professional activity being in Mexico. A retiree living on US income meets neither named case, but the list is expressly not exhaustive. The treaty’s own tie-breaker in Article 4(2)(a) runs the same way — permanent home first, then closer personal and economic relations — though for a US citizen it changes nothing on the US side, where the saving clause applies.
Does Mexican law exempt pension income?
In part. Article 93, fraction IV, of the Ley del Impuesto sobre la Renta exempts retirement pensions and similar payments whose daily amount does not exceed fifteen times the general minimum wage of the taxpayer’s area, in the words of the text as last reformed on 1 April 2024; the excess is taxed in the ordinary way.
The fraction names its sources: the retirement sub-accounts under Mexico’s Social Security Law and the individual accounts under the ISSSTE law. It does not name foreign plans, so the text alone does not settle whether a 401(k) or US pension payment qualifies. Separately, Article 5 of the same law lets Mexican residents credit income tax paid abroad on foreign-source income — but for a pension the treaty’s Article 24(4) limits that credit to the tax the United States could charge a non-citizen.
Can the foreign earned income exclusion cover a pension?
No. Section 911(b)(1)(B)(i) of the Internal Revenue Code excludes amounts “received as a pension or annuity” from foreign earned income, and clause (ii) excludes pay from the US government to its employees. Social Security, 401(k) distributions, IRA payouts and government pensions therefore sit outside the exclusion entirely.
For a retiree the working tool is the foreign tax credit, not the exclusion. Where Mexico taxes a pension first, the Mexican tax is credited against the US tax on the same income. Where the United States taxes alone — Social Security — there is no Mexican tax to credit and nothing for the credit to do.
What reporting follows a retiree’s money to Mexico?
Two US filings follow the bank accounts. An FBAR is due when the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year. Form 8938 applies to a single filer living abroad whose specified foreign financial assets exceed $200,000 on the last day of the year or $300,000 at any time, and to a joint filer at $400,000 and $600,000.
The benefit itself travels. The Social Security Administration states that a US citizen may continue to receive payments while outside the United States, and Mexico is not among the countries to which it cannot send them. The same publication states that Medicare generally does not cover health services received outside the United States.
Sources
- IRS — Convention between the United States of America and the United Mexican States for the avoidance of double taxation (1992), Articles 1, 4, 19, 20, 24 and 29 — https://www.irs.gov/pub/irs-trty/mexico.pdf — checked 21 September 2026
- Office of the Law Revision Counsel — 26 U.S.C. 86, Social Security and tier 1 railroad retirement benefits — https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section86&num=0&edition=prelim — checked 21 September 2026
- Office of the Law Revision Counsel — 26 U.S.C. 911, Citizens or residents of the United States living abroad — https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section911&num=0&edition=prelim — checked 21 September 2026
- IRS — Publication 915 (2025), Social Security and Equivalent Railroad Retirement Benefits — https://www.irs.gov/publications/p915 — checked 21 September 2026
- IRS — Form 1116, Certain income re-sourced by treaty (video text script) — https://www.irs.gov/newsroom/form-1116-certain-income-re-sourced-by-treaty-youtube-video-text-script — checked 21 September 2026
- Cámara de Diputados — Ley del Impuesto sobre la Renta, Articles 1, 5 and 93 (última reforma DOF 01-04-2024) — https://www.diputados.gob.mx/LeyesBiblio/pdf/LISR.pdf — checked 21 September 2026
- Cámara de Diputados — Código Fiscal de la Federación, Article 9 (última reforma DOF 09-04-2026) — https://www.diputados.gob.mx/LeyesBiblio/pdf/CFF.pdf — checked 21 September 2026
- Social Security Administration — Your Payments While You Are Outside the United States, Publication No. 05-10137 — https://www.ssa.gov/pubs/EN-05-10137.pdf — checked 21 September 2026
- FinCEN — Report Foreign Bank and Financial Accounts — https://www.fincen.gov/report-foreign-bank-and-financial-accounts — checked 21 September 2026
- IRS — Summary of FATCA reporting for U.S. taxpayers — https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-us-taxpayers — checked 21 September 2026
Common questions
- Does the US–Mexico tax treaty make my Social Security tax-free?
- No. The treaty makes US Social Security taxable only in the United States, which keeps Mexico from taxing it, but the IRS still taxes it under the ordinary rules — up to 85% of benefits once combined income passes $25,000 for a single filer or $32,000 on a joint return. Mexico is not among the countries whose US-citizen residents are exempt.
- Can Mexico tax my US Social Security if I become a Mexican tax resident?
- No. Article 19(1)(b) gives the United States the sole right to tax Social Security it pays to a resident of Mexico or to a US citizen, and Article 1(4)(a) protects that rule from the saving clause. Mexico’s general right to tax its own residents on worldwide income therefore stops short of the benefit.
- Who taxes my 401(k) withdrawals if I live in Mexico?
- Mexico taxes them first. Article 19(1)(a) makes pensions paid for past employment taxable only in the country of residence, but the saving clause lets the United States tax its citizens as well. Article 24(4) then has the IRS credit the Mexican tax against the US tax on the same payment, treating the income as Mexican-source for that purpose.
- Will I be taxed twice on my pension in Mexico and the US?
- Both countries tax it, but the treaty orders the claims so the same income is not taxed in full twice. Mexico taxes a private pension first and credits only the US tax that could have been charged to a non-citizen — nothing, for a pension. The IRS then credits the Mexican tax, using a separate Form 1116 for income re-sourced by the treaty.
- Can I use the foreign earned income exclusion on my pension?
- No. Section 911(b)(1)(B)(i) of the Internal Revenue Code excludes amounts received as a pension or annuity from foreign earned income, and clause (ii) excludes US government pay. Social Security, 401(k) payouts, IRA distributions and government pensions all fall outside the exclusion, so the foreign tax credit is the mechanism that applies instead.
- Is my state teacher’s pension taxed in Mexico?
- Under Article 20(2) a pension paid by a US state, political subdivision or local authority for past government service is taxable only in the United States. That protection reaches past Mexico’s saving clause only for someone who is neither a Mexican citizen nor a lawful permanent resident in Mexico, and the treaty does not define that phrase for Mexico.
- Does the treaty say how an IRA or Roth IRA is taxed in Mexico?
- No. The treaty names neither IRAs nor Roth accounts. Article 19(1)(a) covers pensions and similar remuneration paid in consideration of past employment, and an account funded by personal contributions is not named in those terms. How Mexico classifies an IRA or Roth payout therefore rests on Mexican law rather than on the treaty text.
- When does Mexico consider me a tax resident?
- Once your home — casa habitación — is established in Mexico, under Article 9 of the Código Fiscal de la Federación. With homes in both countries, Mexico looks to the center of vital interests, naming more than 50% of income from Mexican sources or a main professional activity in Mexico among other cases. Residents are taxed on worldwide income.
- Does Mexico exempt pension income from its income tax?
- In part. Article 93, fraction IV, of the Ley del Impuesto sobre la Renta exempts pensions whose daily amount does not exceed fifteen times the general minimum wage of the taxpayer’s area, taxing the excess. The text names Mexican social-security and ISSSTE retirement accounts, not foreign plans, so it does not settle on its own whether a US payment qualifies.
- Do I have to file an FBAR for my Mexican bank account?
- Yes, once the combined value of all your foreign financial accounts exceeds $10,000 at any time during the calendar year. Form 8938 is a separate filing: a single filer living abroad crosses its threshold above $200,000 on the last day of the year or $300,000 at any time, and a joint filer above $400,000 and $600,000.
- Will Social Security keep paying me if I move to Mexico?
- Yes. The Social Security Administration states that a US citizen may continue to receive payments while outside the United States, and Mexico is not on the list of countries to which it cannot send them. Medicare is a different matter: the same publication states that Medicare generally does not cover health services received outside the United States.
A note on tax content
Tax content on this site is for general informational purposes only and does not constitute tax advice. Rules for U.S. citizens abroad depend on individual circumstances, country of residence, income sources, account structures, and applicable treaties — always consult a qualified tax professional in the relevant jurisdiction before making decisions.
The information provided by US Expat is for educational and informational purposes only. It should not be treated as personalized tax, legal, immigration, investment, insurance, or financial advice. U.S. citizens abroad should consult qualified professionals who understand their specific facts and circumstances. US Expat is not a law firm, tax filing firm, or immigration law firm.
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