Do I owe U.S. tax on my Mexican bank account interest as a U.S. expat?

Yes, as a U.S. citizen or green card holder, you owe U.S. income tax on all worldwide interest income, including interest earned in a Mexican bank account, reported on Schedule B of Form 1040. You may also owe FBAR and Form 8938 filings depending on account balances.

Reporting stack for Mexican bank accounts:

• Schedule B: interest income, with Part III disclosing foreign accounts if any single account exceeds $10,000 or the aggregate does
• FBAR (FinCEN 114): required if total foreign financial accounts exceed $10,000 aggregate at any time
• Form 8938: required if foreign financial assets exceed FATCA thresholds ($200,000 single / $400,000 MFJ at year’s end for expats)

Currency conversion:

• Use the Treasury end-of-year rate for FBAR balance reporting
• Use the transaction date or yearly average rate for income reporting (consistent method)
• Document your conversion method and apply it uniformly

Foreign tax credit considerations:

• Mexico withholds ISR (Impuesto Sobre la Renta) on interest, typically 1.04% to 1.45% of the principal (current rates; verify with Mexican tax authority), treated as advance tax against your Mexican return
• The Mexican tax paid is generally creditable via Form 1116 in the passive category
• High earners should track the FTC carryover since Mexican withholding can produce excess credits

Most Mexican banks now require a U.S. Social Security number for account holders under FATCA reporting rules (Mexico signed an IGA in 2012), so expect the IRS already knows about your account.

For more on filing U.S. taxes from Mexico, see our Taxes in Mexico for U.S. Expats.