Taxing Wages 2024

Mexico

Abstract

This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.

Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.

 

 

The national currency is the peso (MXN). In 2023, MXN 18.29 were equal to USD 1. That year, the estimated earnings of the average worker are MXN 172 991(Secretariat estimate).

1. Personal Income Tax

1.1. Central government income tax

1.1.1. Tax unit

Each person is taxed separately.

1.1.2. Tax allowances and tax credits

1.1.2.1. Standard tax reliefs

There are two basic allowances, a yearly holiday bonus and an end-of-year bonus.

• Holiday Bonus: As a result of the amendment of the Mexico's Labour Law that entered into force in 2023, stipulates a minimum holiday bonus of 25% of twelve days of the worker’s wage. The maximum exemption according to the Tax Law is equivalent to 15 UMAs.1

• End-of-year bonus: The minimum end-of-year bonus established in the Labour Law is 15 days of the worker’s wage. The Tax Law exempts end-of-year-bonuses up to 30 UMAs.

1.1.2.2. Main non-standard tax reliefs

Deductions:

• Compulsory school transportation costs.

• Medical expenses (doctor, dental, psychology and nutrition fees and hospital expenses): For expenses made by the taxpayer on behalf of his or her spouse and straight-line relatives, the deduction is allowed only if the taxpayer´s relative earns less than the minimum annual wage.

• Complementary contributions of certain retirement accounts are considered eligible as long as they do not exceed 10% of taxable income and MXN 189 222 (5 annual UMAs).

• Funeral expenses: for the spouse and straight-line relatives up to 1 annual UMA.

• Charitable donations made to institutions such as:

  • Federal, state, and municipal governments.

  • Non-profit organisations involved in the fields of social beneficence, education, culture, and research and technology.

• Deposits on special savings accounts, payments of insurance premium of pension plans, and for the acquisition of shares of investment societies as long as they do not exceed MXN 152 000.

• Health insurance premiums for individuals, if the beneficiary is the taxpayer, and/or his family.

• Real interest expenditure of mortgage loans if the value of the property does not exceed MXN 5 798 860 (750 000 Investment Units). Real interest expenditure is defined as the excess of interest expense over the inflation rate. 2

• Deduction of taxpayer's educational expenditures for himself, on behalf of his/her spouse, parents or children, among others, for the following educational levels.

 

Educational Level	Maximum Annual Deduction (MXN)
Kinder Garden	14 200
Primary Education	12 900
Secondary Education	19 900
Technical Profession	17 100
High School	24 500

Since 2016, the limit amount for personal deductions was increased. The new limit is the minimum between 15% of taxpayer's gross income and an amount equivalent to 5 annual UMAs (MXN 189 222 in 2023). The limit does not apply to private school´s tuition, complementary contributions to retirement´s personal accounts, professional fees, and medical expenses in the event of incapacity or disability. Since 2022 this limit applies to charity donations.

1.1.2.3. Employment subsidy credit

The employment subsidy credit is decreasing on workers´ income and is assigned based on a table of income brackets. For monthly income higher than MXN 7 382 no employment subsidy credit is given. Employees with an income tax lower than the credit receive in cash the difference along with their salary. The rest of the workers that receive the credit are entitled to a reduction in their tax burden. The employment subsidy credit is paid by the employers who may credit it against their tax liabilities; the credit therefore represents a fiscal cost for the government.

1.1.3. Tax schedule and other tables

1.1.3.1. Tax schedule

 

Taxable income (MXN)		Fixed quota (MXN)	Tax on the amount in excess of the lower limit (%)
Lower Limit	Upper Limit
0.01	8 952.49	0.00	1.92
8 952.50	75 984.55	171.88	6.40
75 984.56	133 536.07	4 461.94	10.88
133 536.08	155 229.80	10 723 .55	16.00
155 229.81	185 852.57	14 194.54	17.92
185 852.58	374 837.88	19 682.13	21.36
374 837.89	590 795.99	60 049.40	23.52
590 796.00	1 127 926.84	110 842.74	30.00
1 127 926.85	1 503 902.46	271 981.99	32.00
1 503 902.47	4 511 707.37	392 294.17	34.00
4 511 707.38	And over	1 414 947.85	35.00

The income tax schedule is updated in 2023 because the accumulated inflation exceeded the 10% minimum since the last update in 2021.

1.1.3.2. Employment subsidy credit table

For annual taxable income in a certain income range, the employment subsidy credit is given in the third column of the following illustrative table:

 

Lower limit (MXN)	Upper limit (MXN)	Tax credit (MXN)
0.0	21 227.52	4 884.24
21 227.53	31 840.56	4 881.96
31 840.57	41 674.08	4 879.44
41 674.09	42 454.44	4 713.24
42 454.45	53 353.80	4 589.52
53 353.81	56 606.16	4 250.76
56 606.17	64 025.04	3 898.44
64 025.05	74 696.04	3 535.56
74 696.05	85 366.80	3 042.48
85 366.81	88 587.96	2 611.32
88 587.97	And Over	0.00

1.2. State and local income taxes

States do not levy taxes on income.

1.3. Payroll taxes

Mexico does not have a Federal pay-roll tax. However, most States apply a state pay-roll tax with an average rate of 2.80%. These taxes are not considered in this Report since there are a wide range of practices with respect to the definition of the tax base that does not allow obtaining a reliable estimation.

2. Compulsory Social Security Contributions to Schemes Operated within the Government Sector

2.1. Employees’ contributions

Social security contributions are divided as follows:

For sickness and maternity insurance, 0.625% of the workers monthly wage, plus 0.40% of the amount in excess of 3 UMAs. For disability and life insurance, 0.625% of the monthly wage.

In 2023, a ceiling of 25 UMAs applies to the salary that is used to calculate the social security contributions.

2.2. Employers’ contributions

• For sickness and maternity 20.40% of the UMA, plus 1.10% of the amount in excess of 3 UMAs, plus 1.75% of the monthly wage.

• For disability and life insurance, 1.75% of worker’s monthly wage.

• For social services and nursery, 1% of worker’s monthly wage.

• For insurance for work injuries of employees, 1.928% of worker’s monthly wage.3

In 2023, a ceiling of 25 UMAs applies to the salary that is used to calculate the social security contributions.

3. Universal Cash Transfers

3.1. Transfers related to marital status

None.

3.2. Transfers for dependent children

None.

4. Main Changes in the Tax/Benefit System since 1995

The Social Security Law enacted in July 1997 changed fundamentally the financing of non-government employees’ social security, which shifted from a pay-as-you-go scheme to funded individual accounts. The government does not manage these accounts; new private financial institutions were created specifically for this purpose. However, the contractual obligation is between the workers and the government, not with the private administrator of the funds, because legally they are still considered as contributions to social security, independently of who manages the funds. It should be noted that the federal government also contributes to each pension account and guarantees a minimum pension to every beneficiary of the social security system, independently of the administration of the funds as well.

4.1. Changes to labour taxation due to the COVID pandemic in 2020 and 2021

Federal Government.

• The Tax Administration Service extended the deadline for filing the individual 2020 annual tax return until May 31st, 2021 (originally April 30).

• The Tax Administration Service extended the deadline for filing the individual 2019 annual tax return until June 30, 2020 (originally April 30).

Examples of tax measures at Subnational Governments.

• Waiver of the Payroll Tax corresponding to the month of January 2021 for taxpayers of sectors affected by the pandemic in the historic downtown area of Mexico City & for all the restaurants in Mexico City.

• The Mexico City Government suspended tax inspection acts from December 17th, 2020, to January 6th, 2021.

• The Mexico City Government extended the deadline to obtain a discount on the payment of the Tax on Vehicle Ownership from the end of March to the end of July. The City Government also announced the deferral of tax returns and payments obligations included in the Mexico City Tax Code, extending the deadline to the end of the month. Tax inspection acts were suspended from March 23rd to May 29th.

• Individuals and companies were exempted of surcharges, fines and other expenses generated during the first three bimesters of 2020 for non-compliance with the payment of the property tax. Additionally, a 5% discount was granted on the payment of this tax for the fourth bimester, as well as for advance payments of the tax corresponding to the fifth and sixth bimesters.

• The State of Mexico also extended the deadline for the payment of the Tax on Vehicle Ownership to the end of July. The Government also granted a 100% discount in the tax on lodging for the months of April, May, June, and July and a 50% discount for the payment of payroll tax for companies with up to 50 employees for April and May.

• The Government of the State of Sonora announced for March and April a 50% discount for the payment of payroll tax for companies with up to 50 employees and a 100% discount for the Tax on Lodging. The State Government also announced the deferral for the payment of permits for the sale of alcoholic beverages and for the revalidation of vehicles permits, and the suspension of tax inspection acts. The measures were extended until June.

5. Memorandum Items

5.1. Method used to identify an average worker and to calculate his gross earnings.

The income data refer to average workers. It should be noted that in the sample used for this survey, medium and large size firms are over-represented. In Mexico, there are no state or local government income taxes. Information on non-standard tax reliefs is not available.

Figures for 1999 and subsequent years cannot be compared with preliminary figures from previous editions of this publication for two reasons: first, the wage level of the average worker is now based on observed data instead of being estimated; second, social security contributions taken into account no longer include contributions made by employers and employees to privately managed individual accounts. Contributions no longer included in the calculation of social security contributions are specified in the table below.

5.2. Main employees’ and employers' contributions to private pension, health, etc. schemes

 

	Account	% of workers’ monthly wage
Employers’ contributions	Retirement	2.00
	Discharge and old age insurance	As a result of an amendments of the Social Security Law and Retirement Savings Systems Law that entered into force in 2021, which consider a gradual increase to the employer's discharge and old age insurance rate from 2023 until 2030. The contribution will be increased according to the table below
	Housing Fund (INFONAVIT)	5.00
Employees’ contributions	Discharge and old age insurance	1.125

Contribution rates to private pension, health, etc. for employees and employers from 2023 onwards

 

Worker’s base salary	2023	2024	2025	2026	2027	2028	2029	2030
1.00 Minimum wage (Mw)	3.15%	3.15%	3.15%	3.15%	3.15%	3.15%	3.15%	3.15%
1.01 Mw to 1.50 Unit of Measure and Update (UMA)	3.28%	3.41%	3.54%	3.68%	3.81%	3.94%	4.07%	4.20%
1.51 to 2.00 UMA	3.58%	4.00%	4.43%	4.85%	5.28%	5.70%	6.13%	6.55%
2.01 to 2.50 UMA	3.75%	4.35%	4.95%	5.56%	6.16%	6.76%	7.36%	7.96%
2.51 to 3.00 UMA	3.87%	4.59%	5.31%	6.03%	6.75%	7.46%	8.18%	8.90%
3.01 to 3.50 UMA	3.95%	4.76%	5.56%	6.36%	7.16%	7.97%	8.77%	9.57%
3.51 to 4.00 UMA	4.02%	4.88%	5.75%	6.61%	7.48%	8.35%	9.21%	10.08%
4.01 to 4.50 UMA	4.24%	5.33%	6.42%	7.51%	8.60%	9.69%	10.78%	11.88%

2023 Parameter values

 

Average earnings/yr	Ave_earn	172 991	Secretariat estimate
Unit of Measure and Update	UMA	103.74
Income tax	tax_table	0.00	0	0.0192
		8 952.50	171.88	0.0640
		75 984.56	4 461.94	0.1088
		133 536.08	10 723.55	0.1600
		155 229.81	14 194.54	0.1792
		185 852.58	19 682.13	0.2136
		374 837.89	60 049.40	0.2352
		590 796.00	110 842.74	0.3000
		1 127 926.85	271 981.99	0.3200
		1 503 902.47	392 294.17	0.3400
		4 511 707.38	1 414 947.85	0.3500
Tax credit basic	Basic_crd	0.0	4 884.24
		21 227.53	4 881.96
		31 840.57	4 879.44
		41 674.09	4 713.24
		42 454.45	4 589.52
		53 353.81	4 250.76
		56 606.17	3 898.44
		64 025.05	3 535.56
		74 696.05	3 042.48
		85 366.81	2 611.32
		88 587.97	0.00
Employees SSC	SSC_rate	0.0125
	SSC_rate_sur	0.0040
Employers SSC	SSC_empr	0.06428
	SSC_empr_min	0.2040
	SSC_empr_sur	0.0110

2023 Tax equations

The equations for the Mexican system in 2023 are on an individual basis.

The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.

 

	Line in country table and intermediate steps	Variable name	Range	Equation
1.	Earnings	earn
2.	Allowances	tax_al	B	MIN(earn, MIN(earn*(12/365)*0.25, UMA*15)+ MIN(earn*(15/365), UMA*30))
3.	Credits in taxable income	taxbl_cr	B	0
4.	CG taxable income	tax_inc	B	Positive(earn-tax_al)
5.	CG tax before credits	CG_tax_excl	B	Tax(tax_inc, Tax_sch)
6.	Tax credits	tax_cr	B	VLOOKUP(tax_inc, Basic_crd, 2)
7.	CG tax	CG_tax	B	CG_tax_excl-tax_cr
8.	State and local taxes	local_tax	B	0
9.	Employees' soc security	SSC	B	MIN(earn*ssc_rate, UMA*25*30.4*12*ssc_rate)+MIN(Positive(earn-(3*30.4*12*UMA))*ssc_rate_sur, UMA*(25-3)*30.4*12*ssc_rate_sur)
11.	Cash transfers	cash_trans	B	0
13.	Employer's soc security	SSC_empr	B	MIN(earn*ssc_empr, UMA*25*30.4*12*ssc_empr)+30.4*12*UMA*ssc_empr_min +MIN(Positive(earn-(3*30.4*12*UMA))*ssc_empr_sur, UMA*(25-3)*30.4*12*ssc_empr_sur)
	Memorandum item: Non-wastable tax credit
	tax expenditure component	taxexp	B	tax_cr-transfer
	cash transfer component	transfer	B	IF(CG_tax<0, -CG_tax, 0)

Key to range of equation B calculated separately for both principal earner and spouse P calculated for principal only (value taken as 0 for spouse calculation).

Notes

← 1.  For 2023, the value of the UMA is 103.74, mean while the general minimum wage is 207.44 and 312.41 in the northern border region. The municipalities constituting the northern border region are as follows: Ensenada, Playas de Rosarito, Mexicali, Tecate, Tijuana, San Quintín and San Felipe in the state of Baja California; San Luis Río Colorado, Puerto Peñasco, General Plutarco Elías Calles, Caborca, Altar, Sáric, Nogales, Santa Cruz, Cananea, Naco and Agua Prieta in the state of Sonora; Janos, Ascensión, Juárez, Práxedis G. Guerrero, Guadalupe, Coyame del Sotol, Ojinaga and Manuel Benavides in the state of Chihuahua; Ocampo, Acuña, Zaragoza, Jiménez, Piedras Negras, Nava, Guerrero and Hidalgo in the state of Coahuila de Zaragoza; Anáhuac in the state of Nuevo León, and Nuevo Laredo; Guerrero, Mier, Miguel Alemán, Camargo, Gustavo Díaz Ordaz, Reynosa, Río Bravo, Valle Hermoso and Matamoros in the state of Tamaulipas.

← 2.  The Investment Units (UDIS) is a daily frequency indicator and it is updated taking as reference the fortnightly variations of the National Consumer Price Index (INPC). The average value of the UDIS from January to April of 2023 was MXN 7.7318.

← 3.  The amount of the work injury fee depends on the risk level in which the company is classified. The Mexican Institute of Social Security provided a weighted average rate that considers the economic activities from C to K of the International Standard Classification.