question about mexican taxes

[dpebbles]

We are here on an expat assignment for my husband's company...he works in the automotive industry. ( 2years) The company recently did our taxes for us and we were informed that on top of the $600 a month my husband pays in taxes to his employer,(which they take right out of his check) that he also must reimburse for the mexican taxes they have to pay for him to be here as well. Which they want an extra $8,075 american for. This doesn't make sense to me. The $600 a month he pays is supposed to be the tax equalization of what we would pay if he were still working in the U.S. Why would we pay taxes for both countries??? His checks are paid out of the U.S. and he is paid in american money. The way they did the taxes is that we get a tax credit from the IRS and his employer in turn wants us to then hand over our taxes to them after we recieve them. So basically they get free money...not having to claim any of that money from the IRS but it is all on our tax return. They say that they have been doing it this way for 10 years now with all their expats....do any of you have any experience with expat assignments and can anyone give me any advice on this matter?

[TundraGreen]

Originally Posted by dpebbles

We are here on an expat assignment for my husband's company...he works in the automotive industry. ( 2years) The company recently did our taxes for us and we were informed that on top of the $600 a month my husband pays in taxes to his employer,(which they take right out of his check) that he also must reimburse for the mexican taxes they have to pay for him to be here as well. Which they want an extra $8,075 american for. This doesn't make sense to me. The $600 a month he pays is supposed to be the tax equalization of what we would pay if he were still working in the U.S. Why would we pay taxes for both countries??? His checks are paid out of the U.S. and he is paid in american money. The way they did the taxes is that we get a tax credit from the IRS and his employer in turn wants us to then hand over our taxes to them after we recieve them. So basically they get free money...not having to claim any of that money from the IRS but it is all on our tax return. They say that they have been doing it this way for 10 years now with all their expats....do any of you have any experience with expat assignments and can anyone give me any advice on this matter?

I don't really understand what is going on from your description. Is the company withholding US taxes? A company can't actually pay taxes to the US for an individual. That is the individual's responsibility.

The way it should work (in my opinion---I am no tax lawyer), is that he should pay US taxes on the money he makes. He also should file a Mexican tax return. He probably won't owe Mexico any tax since they will give him credit the US taxes he is paying. Maybe it is more accurate to say that Mexico will give him a credit for US taxes he has paid. There is no way the company should be in the middle of all this except for withholding US taxes that are reported on a W-2.

[dpebbles]

Originally Posted by TundraGreen

I don't really understand what is going on from your description. Is the company withholding US taxes? A company can't actually pay taxes to the US for an individual. That is the individual's responsibility.

The way it should work (in my opinion---I am no tax lawyer), is that he should pay US taxes on the money he makes. He also should file a Mexican tax return. He probably won't owe Mexico any tax since they will give him credit the US taxes he is paying. Maybe it is more accurate to say that Mexico will give him a credit for US taxes he has paid. There is no way the company should be in the middle of all this except for withholding US taxes that are reported on a W-2.

yes, the company withholds $600 a month (300 every two weeks) for his U.S. taxes. That is how we were told it works....then at the end of the year they have our taxes done for us....that is when we found out they also wanted another $8,075 from our return for the Mexican taxes they paid as well. It has us completely stumped. They call it a hypo-tax.

[RPBHaas]

Originally Posted by dpebbles

We are here on an expat assignment for my husband's company...he works in the automotive industry. ( 2years) The company recently did our taxes for us and we were informed that on top of the $600 a month my husband pays in taxes to his employer,(which they take right out of his check) that he also must reimburse for the mexican taxes they have to pay for him to be here as well. Which they want an extra $8,075 american for. This doesn't make sense to me. The $600 a month he pays is supposed to be the tax equalization of what we would pay if he were still working in the U.S. Why would we pay taxes for both countries??? His checks are paid out of the U.S. and he is paid in american money. The way they did the taxes is that we get a tax credit from the IRS and his employer in turn wants us to then hand over our taxes to them after we recieve them. So basically they get free money...not having to claim any of that money from the IRS but it is all on our tax return. They say that they have been doing it this way for 10 years now with all their expats....do any of you have any experience with expat assignments and can anyone give me any advice on this matter?

I do have experience with certain tax issues as I have a USA based company and a Mexican subsidiery. To help you with your question, I would need to know a little more information.
1. Who does your husband directly work for, a US company or a Mexican company?
2. How are the taxes that have been taken classified? i.e. FICA (US) or ISPT (mexican equivalent of employee/payroll tax) or IMSS (Mexican equivalent to health insurance/ social security)
3. If your husband is an independent contractor, the taxes are very different and he would be responsible for his individual filings here in Mexico and at the end of the year (most likely) in the US.

[FHBOY]

I have an adjunct question: If while in Mexico you run into this type of tax issues, who can you ask for clarification. Obviously you could ask your US tax adviser/accountant, but is there a Mexican bureau to deal with this?

[RPBHaas]

Originally Posted by FHBOY

I have an adjunct question: If while in Mexico you run into this type of tax issues, who can you ask for clarification. Obviously you could ask your US tax adviser/accountant, but is there a Mexican bureau to deal with this?

Yes there are a few government agencies that advise workers regarding labor issues including emplyment taxes. I would advise starting at the closest US consulate. The officials at the consulate will most likely have references of Mexican accountants/lawyers to assist with tax issues. Also, through networks of friends, you may also find/be introduced to a Mexican accountant that may assist.

If the OP is working in Mexico, he must satisfy the host country taxes first and then pay any balance to the IRS. For example, if the OP earns $50,000 usd in Mexico as an employee, he would have IMSS and ISPT removed from his check each pay period. Mexican taxe rates are generally posted in "tablas" and are per scale. (not a fixed %) If the US equivalent, in terms of percentage, is satisfied on a yearly basis, the OP would not owe any US taxes. There is also a foreign earned income credit applied to earnings outside the US.

[dpebbles]

Originally Posted by RPBHaas

I do have experience with certain tax issues as I have a USA based company and a Mexican subsidiery. To help you with your question, I would need to know a little more information.
1. Who does your husband directly work for, a US company or a Mexican company?
2. How are the taxes that have been taken classified? i.e. FICA (US) or ISPT (mexican equivalent of employee/payroll tax) or IMSS (Mexican equivalent to health insurance/ social security)
3. If your husband is an independent contractor, the taxes are very different and he would be responsible for his individual filings here in Mexico and at the end of the year (most likely) in the US.

He works for an American company with a manufacturing plant also down here. They are a supplier to GM. My husband is an engineer.
He pays American taxes. FICA....we were never even informed of any Mexican taxes being paid on his behalf. It is just now that they are informing us that....apparently they pay one lump sum for all their employees...they are not paid individually. He has no Mexican w2...everything was done out of the United States and everything we filed was filed through the IRS. They have not even shown us any proof that they pay anything on his behalf down here and apparently can't find any proof either.

[RPBHaas]

Originally Posted by dpebbles

He works for an American company with a manufacturing plant also down here. They are a supplier to GM. My husband is an engineer.
He pays American taxes. FICA....we were never even informed of any Mexican taxes being paid on his behalf. It is just now that they are informing us that....apparently they pay one lump sum for all their employees...they are not paid individually. He has no Mexican w2...everything was done out of the United States and everything we filed was filed through the IRS. They have not even shown us any proof that they pay anything on his behalf down here and apparently can't find any proof either.

There are time limits the IRS applies to oversea employment. I do not have the information readily available but I have read it on the IRS website. I found the information using their search feature.
I would advise clarifing which company is actually paying your husband. If it is the Mexican company or the Mexican subsidiery of a US company, he generally should pay Mexican taxes first which are in turn generally deductible from any US federal income taxes possibly owed. If his employer is a US company and he is paid by a US company into a US bank account, contact the US employer and explain the situation. In this case, he should probably not owe anything to the Mexican Hacienda or Mex IRS. It is possible the host company is trying to recieve monies that are not legally theirs, but a clarification is needed prior to knowing.
I believe there are expats on this forum that are employed by US firms and on "assignment" in Mexico. They may have more knowledge about this situation.
The one thing for certain is he should not be paying payroll taxes in both countries on a pay period basis.

First, look at your husband's MX visa carnet. Does it say "NO INMIGRANTE"? (equivalent of the old FM-3)

Then, read his employment contract for his time in MX. (he did get one of these, right?)

If your husband has this type of visa (No Inmigrante) and works as an employee for a company here in MX, then by MX law, he must be paid through the US company, and into a bank account outside of MX. To get him the original No Inmigrante visa to work here as an employee in MX, both the MX and the US companies had to write letters of support to INM with his initial visa submission.

By MX law, he is EXEMPT from MX income taxes with this type of visa. The MX company is not allowed to pay him on this type of visa, unless he is working as an independent contractor here. He receives no benefits of MX law either, such as severance pay, annual company profit sharing, etc.

Any US withholding being done now would probably be for the Medicare/SS taxes.

If he is working as a MX employee and being paid through the MX company, then yes, he will pay MX income and other taxes. In return, when you file your US taxes, you will receive a credit for foreign taxes paid to MX, to be credited against any US taxes due.

If he is working as a consultant and not as a company employee to the MX company, his visa will say "NO INMIGRANTE" at the top in big letters, and then below under "Modalidad" it will say " Lucrativa" or something similar.

As far as having the company do your annual taxes, that is one "benefit" I would never accept. Company bean-counters are only looking for one thing - how to tweak things to the company's benefit, and there are darn few that really understand or know about expat tax issues. Sure, most accountants will SAY they know it, but the truth is they don't want to appear ignorant. Plus, the company's US accountants are probably fretting about assigning his costs to the correct cost center (the MX company), without thinking through the ramifications.

Most US accountants don't know MX taxation, and neither they or most Mexicans as a whole know anything about MX Immigration laws and rules (such as the tax exemption on a No Inmigrante visa). You would pay a good US CPA/tax attorney who specializes in expat taxes no more than $500 a year to do your US tax filings for you. (a good reference available upon private request)

For MX tax questions, go to any good MX accountant (contador). They will know how things work, and how much is to be paid. In my experience, many will give free advice on an initial visit.

[dpebbles]

Originally Posted by GringoCArlos

First, look at your husband's MX visa carnet. Does it say "NO INMIGRANTE"? (equivalent of the old FM-3)

Then, read his employment contract for his time in MX. (he did get one of these, right?)

If your husband has this type of visa (No Inmigrante) and works as an employee for a company here in MX, then by MX law, he must be paid through the US company, and into a bank account outside of MX. To get him the original No Inmigrante visa to work here as an employee in MX, both the MX and the US companies had to write letters of support to INM with his initial visa submission.

By MX law, he is EXEMPT from MX income taxes with this type of visa. The MX company is not allowed to pay him on this type of visa, unless he is working as an independent contractor here. He receives no benefits of MX law either, such as severance pay, annual company profit sharing, etc.

Any US withholding being done now would probably be for the Medicare/SS taxes.

If he is working as a MX employee and being paid through the MX company, then yes, he will pay MX income and other taxes. In return, when you file your US taxes, you will receive a credit for foreign taxes paid to MX, to be credited against any US taxes due.

If he is working as a consultant and not as a company employee to the MX company, his visa will say "NO INMIGRANTE" at the top in big letters, and then below under "Modalidad" it will say " Lucrativa" or something similar.

As far as having the company do your annual taxes, that is one "benefit" I would never accept. Company bean-counters are only looking for one thing - how to tweak things to the company's benefit, and there are darn few that really understand or know about expat tax issues. Sure, most accountants will SAY they know it, but the truth is they don't want to appear ignorant. Plus, the company's US accountants are probably fretting about assigning his costs to the correct cost center (the MX company), without thinking through the ramifications.

Most US accountants don't know MX taxation, and neither they or most Mexicans as a whole know anything about MX Immigration laws and rules (such as the tax exemption on a No Inmigrante visa). You would pay a good US CPA/tax attorney who specializes in expat taxes no more than $500 a year to do your US tax filings for you. (a good reference available upon private request)

For MX tax questions, go to any good MX accountant (contador). They will know how things work, and how much is to be paid. In my experience, many will give free advice on an initial visit.

Gringo Carlo I owe you a million thanks and will do so as soon as I can. You just gave me all the info I need.