Taxing Overtime

Part of overtime pay is taxable and part of it is non-taxable. This depends on the type of worker:

Minimum salary workers.
Above minimum salary workers.

For minimum salary workers, all double hours below three hours daily and up to three times a week is non-taxable. The remainder of overtime is taxed at 100 percent.

For above minimum salary workers, 50 percent of the overtime is non-taxable up to 5 times the minimum wage. This means that while 50 percent is not greater than 5 times the minimum wage for each overtime week, everything above this limit should be taxable.

Example of Non-Taxable Overtime for Minimum Salary Workers

Hourly rate = 5.65 MXN

Overtime hours worked in one week (9 hours double and 2 hours triple) = 11 hours

Double overtime hours earned = 9 hours x 5.65 = 50.85 x 2 (double) = 101.70 MXN (non-taxable)

Triple overtime hours earned = 2 hours x 5.65 = 11.30 x 3 (triple) =33.90 MXN (100 percent taxable)

Non-taxable overtime = 101.70 MXN

Taxable overtime = 33.90 MXN

Examples of Taxable and Non-Taxable Overtime for Above Minimum Salary Workers

Example 1:

Minimum wage = 45.24 MXN

5 times minimum wage = 226.20 MXN

Overtime in Week 1 = 150.00 MXN

Taxable overtime = 75.00 MXN

Non-taxable overtime = 75.00 MXN

Note: The non-taxable portion of overtime is 75.00 MXN, because 75.00 MXN is not greater than 5 times minimum wage (which would be 226.20 MXN).

Example 2:

Minimum wage = 45.24 MXN

5 times minimum wage = 226.20 MXN

Overtime in Week 2 = 550.00 MXN

Taxable overtime = 323.80 MXN

Non-taxable overtime = 226.20 MXN

Note: The non-taxable portion of overtime is 226.20 MXN, because 275.00 MXN (50 percent of the overtime) is greater than 5 times minimum wage (226.20 MXN). Therefore, the non-taxable portion of the overtime is capped at 5 times minimum wage.