The answer is: possibly, if they qualify, and each individual has to _claim_ the Foreign Earned Income Exclusion by filing a timely Form 2555. There is a host of issues here; it may not be beneficial to claim the FEIE if the Mexican income tax is higher than U.S. federal tax, instead use Form 1116 to claim foreign tax credits. Generally the foreign tax returns should be filed _first_ to establish the final foreign tax due amount. Also, there is no Form W-2 filing requirement for Mexican resident employers with Mexican resident employees. Is the store a foreign company? If so, she probably has a Form 5471 filing requirement. And remind them about the FBARs.