Calculating the Subsidy Factor

Every year, companies in Mexico need to calculate their subsidy factor based on the earnings and deductions of a single year. This subsidy factor is used to determine the creditable and non-creditable portions of taxes that are going to be calculated during the federal tax calculation process.

Due to recent tax laws, all employees will have their subsidy calculated using the following formula:

Subsidy Proportion = Total taxable base / Total earnings in the last year.

Here is an example of the subsidy factor calculation, using an employee's data for the year 2001. The amounts shown are in Mexican pesos.

Earnings

Taxable Base

Non Taxable Base

Total Earnings

Salary

152,000.00

152,000.00

Vacation Premium

8720.00

1018.00

9738.00

Christmas Bonus

9700.00

2115.00

11,815.00

Overtime

21,510.00

3820.00

25,330.00

Other Earnings

8540.00

35,660.00

44,200.00

TOTAL

200,470.00

42,613.00

243,083.00

Subsidy Proportion = Total Taxable Base 2001 / Total Earnings in 2001

Subsidy Proportion = 200,470.00 / 243,083.00 = .82

You will use this subsidy proportion to calculate the non-creditable subsidy and creditable subsidy for all employees in the company.

For example:

1 - .82 = .18 x 2 = .36

.36 = Non-creditable subsidy

The subsidy proportion (.82) is subtracted from 1 (which is 100 percent of the subsidy proportion) and then multiplied by 2 (formula provided by law) to find the non-creditable subsidy.

1 - .36 = .64

.64 = creditable subsidy

The non-creditable subsidy (.36) is subtracted from 1 (which is 100 percent of the subsidy proportion) to find the creditable subsidy (.64) that will be accredited to an employee's taxes.