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Discussion Starter · #1 ·
Hello, I tried to do a search for this topic but can't seem to find it--apologies if this has come up before.

I stated working remotely from Mexico City for a New York-based organization this year. The payroll services company is saying they cannot put a foreign address for my pay stubs/W2. They indicated one reason may be that the organization is not incorporated outside the United States/in Mexico. The org does not have offices here, I just work on a website so can really be anywhere. The payroll service suggested I get a Texas (or border area) PO Box and use that as an address as that is what has been done for border area workers for other companies they provide services for. Obviously, this does me no good as Mexico is nowhere near the border, nor would I be filing as an expat.

As a U.S.-citizen living legally in Mexico (my husband is Mexican) I do not see what the legal barriers would be. Has anyone run into this problem or have any advice? I would think this is a growing issue for telecommuters.

Thank you in advance.
 

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As a US citizen working remotely in Mexico (or anywhere outside the US), you should not be a W2 employee at all. Normally, you would be a contractor, invoicing your "employer" for your work performed and NOT subject to US withholding, social security nor state income taxes.

You are "working" where you are physically located while performing the work - so in your case, in Mexico. When you file your US tax returns, you are eligible to take the Foreign Earned Income Exclusion (because you are resident outside the US), or to credit any and all foreign income taxes paid against any US tax liability you incur.

Download and take a look at IRS publication 54 for details. But you should be paying Mexican taxes on your earnings (and any social insurances that Mexico might impose).
Cheers,
Bev
 

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I'm going to disagree a little bit here. Bev, I think you're conflating tax issues with labor (payroll processing) issues, and they are slightly different. It can actually be illegal to establish a contractor relationship if you are an employee, so I wouldn't advise that. (You cannot be a contractor unless you actually are according to the definitions, and a current employee with an unchanged relationship to his employer most probably isn't a contractor. Not to mention that trying to do that might cut his after tax pay by about 7% if he's not careful.)

Keep it simple here because it is. The employer is simply requiring a U.S. mailing address for payroll processing purposes, not (obviously) actual residence or domicile in the U.S. So the answer is to provide a U.S. mailing address. If that's the address of a trusted friend or relative, great. If that's the address of a USPS-approved mail forwarder, great. As long as you represent that address as your mailing address, not your place of domicile or residence, no problem.

I recommend having that mailing address in a state without an income tax. Texas works. The reason is that there won't be any complications trying to get state tax withholding cancelled.

Set up direct deposit of your salary and e-mail delivery of payroll stubs, W-2s, etc. if not already done and if available.

As for U.S. Social Security payroll taxes, no problem: they'll get withheld and paid. There's no choice in that. It's a U.S. employer. If there's also a Mexican requirement for residents of Mexico to pay into their system even when working for a foreign (U.S.) employer, so be it -- and there's nothing that can be done about that except to pay all taxes owed.

Participation in employer-provided benefits can continue. Select a Mexico-friendly health plan. Max out 401(k) contributions. And so on.
 

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Discussion Starter · #4 ·
Hi BBC Watcher, I had just finished up doing a round of research and was coming to this forum to follow up and checked out your entry, because I was finding a lot of sources talking about expats filing W-2s. Bev is right that there may be benefits to filing as a contractor (additional deductions) but, as you point out, I'd lose a lot of benefits I'm not ready to give up as a permanent employee (401k, paid holiday time, etc.)

That makes a lot more sense in terms of why the payroll service suggested getting a TX P.O. Box when I got a confusing explanation that it was something border workers do.

I think the only question I have is if it is a problem that my Mexico address does not appear on my W-2? My accountant seemed to think it should. Perhaps it doesn't as a W-2 is about verifying withholding rather than verifying address, but I'd think that somewhere I'd have to prove I live here in Mex City, so that will be my next thing to research.

Thanks so much for this helpful info! I appreciate it.

--Carin
 

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I've got a friend here in France with a similar problem. She has been getting paid on a W-2, using an address in a state with income tax (and having the income tax for the state withheld). What we are going to try this year is taking the FEIE for her in order to get back all her Federal withholding, and then filing a NR form for the state she uses for her mail to see if we can get that back, too. (Her US Social Security is not refundable in this situation - US employer, etc, etc.)

Not sure how things will pan out, but it seems the best approach. (Nothing illegal at least - if the IRS or the state has objections, they can let us know and we'll go from there.) She established her non-US residence last year, so that's not at issue.

Sometimes you just have to try it out and see if it flies.
Cheers,
Bev
 

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It's no problem as long as you make clear you're providing (one of) your mailing address(es) to your payroll department. The IRS has no problem with that. Many wealthy individuals, for example, provide W-2/1040 mailing addresses that go straight to their accountants.

And to Bev's point, yes, a state nonresident filing is exactly what you'd do if you've had state income tax improperly withheld -- a problem that's not unique to moves outside the United States.
 

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The payroll service should be able to enter in a foreign address - sounds like they are being lazy and not researching how to enter using their payroll software. As another responder alluded to, reflecting an address that has state income taxes can flag you as a resident liable for taxes in that state. It should be noted that New York is "extremely" aggressive in this area and should be avoided...

That said, your idea to establish a PO box in Texas with mail forwarding (or scanning and e-mailing of any mail) to your address in Mexico may be the best approach to get-around the bureaucratic rigamarole from the payroll service and state income taxes.

Best regards,
Randall
 
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