Mexican Income Tax on Military Retired Pay and Social Security

U.S. Social Security: never taxable in Mexico. Article 19(1)(b) of the U.S.-Mexico income tax convention makes social security benefits and other public pensions paid by one country to a resident of the other, or to a U.S. citizen, taxable only in the paying country. The saving clause does not reach it: Article 1(5)(a), as replaced by the 2002 Protocol, lists Article 19(1)(b) among the benefits each country must give even to its own residents. A U.S. citizen or anyone else living in Mexico pays tax on U.S. Social Security only to the United States. Military retired pay: exempt, with a condition. Article 20(2) makes a pension paid by a government in respect of services previously rendered to it taxable only in that country, unless the recipient is both a resident and a national of the other country. But Article 1(4) lets Mexico tax its residents as if there were no treaty, and Article 1(5)(b) keeps the Article 20 exemption only for individuals who are neither citizens of, nor lawful permanent residents in, Mexico. A U.S. retiree living in Mexico as a temporary resident keeps the exemption. One who holds Mexican permanent residence (residente permanente), or Mexican citizenship, loses the treaty's protection, and Mexico's own income tax law then decides how retired pay is taxed, with the U.S. return giving credit for Mexican tax under Article 24. That makes a residence decision a tax decision. Moving from temporary to permanent residence in Mexico can change how retired pay is taxed, so get advice from a Mexican tax professional (contador público) before applying. VA disability compensation is not named in the treaty, and Mexico's treatment of it was not researched for this entry. It is exempt from U.S. tax under 38 U.S.C. 5301.