US-Mexico tax treaty
Who taxes a Tijuana commuter's San Diego pay
- Tijuana commuters owe US tax on San Diego wages; under the US-Mexico tax treaty, the US can tax pay for work done in the US.
- California taxes treaty-exempt income and gives no credit for tax paid to Mexico (2025).
- Mexico taxes its residents' worldwide income, San Diego wages included, and credits US income tax.
Working in San Diego, living in Tijuana: which tax returns to file
The IRS sets federal residency by green card or by days in the US under its substantial presence test; the Franchise Tax Board (FTB) taxes nonresidents only on California-source income.
| Commuter | Federal return | California return |
|---|---|---|
| US citizen | Form 1040, worldwide income | Form 540NR if a nonresident |
| Green card holder | Form 1040, worldwide income | Form 540NR if a nonresident |
| Mexican citizen, nonresident alien | Form 1040-NR, US income | Form 540NR |
- The IRS excludes commuting days from the substantial presence test for workers who return home to Mexico within 24 hours on more than 75% of workdays (2025).
- The IRS allows the foreign earned income exclusion only for work done in a foreign country, so commuters cannot exclude San Diego wages.
US-Mexico tax treaty rules for wages and freelance income
Employees
Under Article 15, Mexican-resident employees owe US tax on San Diego pay unless they meet all three conditions:
- They spend 183 days or fewer in the US in any 12 months.
- A non-US-resident employer pays them.
- Their employer does not charge the pay to a US permanent establishment or fixed base, such as an office.
Self-employed
Under Article 14, Mexican-resident freelancers owe US income tax only if they:
- Regularly use a fixed base, such as an office, in the US
- Spend more than 183 days in the US in any 12 months
Under the treaty's saving clause, the US can tax its citizens and residents as it would without the treaty. FTB requires filers to add treaty-exempt income back on Schedule CA (2025).
Mexican tax and Mexican bank accounts
Mexico taxes its residents on income from any source and credits foreign income tax (Income Tax Law, Articles 1 and 5, amended April 1, 2024).
- FTB allows no credit for tax paid to a foreign country (2025).
- US citizens and green card holders file an FBAR, the Treasury foreign account report, for Mexican and other foreign accounts. They file once they hold more than $10,000 in those accounts combined at any point in the year. They file the 2026 report by April 15, 2027, or by October 15, 2027, under the automatic extension.
When to hire a CPA for a green card tie-breaker claim
A green card holder living in Tijuana can claim Mexican residence under the treaty's tie-breaker for people both countries treat as residents. The holder then files Form 1040-NR with Form 8833 as a nonresident alien.
Long-term residents, green card holders in at least 8 of the last 15 tax years, give up US residency for tax purposes when they make that claim. The IRS can then apply the section 877A expatriation tax, a tax on the holder's unrealized gains (2025). A CPA can weigh the claim first: how to choose a CPA.