Understanding Tax Processing

Employers are legally required to maintain and report a variety of tax data about their employees. Global Payroll for Mexico delivers much of the set up information needed to calculate taxes in the system.

With Global Payroll for Mexico, you can define the method for calculating employees' taxes on the General Parameters page.

The tax methods are:

• For regular earnings where ISR Art. 113 is applicable, the following tax methods are available:

  • Annual projection method.

  • Semimonthly projected ISR.

  • Without adjustment.

  • Adjustment during the month.

  • Adjustment at the end of the month.

• Article 112 LISR (Severance pay method).

• Article 142 RISR (Vacation Premium, Profit Sharing, and Christmas Bonus method).

• Article 148 RISR (Multiple months payment method).

This topic discusses each tax method.

To process federal taxes:

1. Define general tax parameters on the General Parameters page.

2. Process tax contributions during regular payroll runs.

3. Run the Federal Taxes report at the end of the tax year.

During a calendar year, there may be times when too much or too little tax is paid because of varying incomes or other circumstances. The annual income tax adjustment process corrects this problem.

You can identify employees who don't qualify for an annual tax adjustment. This includes employees who have:

• Terminated and were rehired and the company decides not to adjust taxes.

• Notified you in writing that they plan to present their tax adjustment themselves (self-presentation).

  This could be based on several reasons. One reason is when an employee has earned more than the government-allowed income limit and must self-present their tax adjustment data.

To process tax annual adjustments:

1. Define annual adjustment parameters on the Annual Adjustments page.

2. Define an annual period and create the calendar for the pay groups that you will run on the Calendar Definition page in the core application.

3. Enter tax data from Form 37 on the Define Prior Employer Data MEX page.

   Form 37 details tax data for employees you hire mid-year who worked for another company earlier in the same tax year. The system processes this information during the annual tax adjustment and that's why it's important to have this information entered prior to the annual adjustment process.

4. Identify payees who don't qualify for an annual tax adjustment on the Payees Without Adjustment page.

5. Run the Form 37 report for employees who are going to present their own annual adjustment tax data.

   You can also run this report at other times of the year. For example, you may also want to provide this information to terminating employees.

6. Run the Annual Adjustment Tax process (PL AJUSTE ANNUAL) at the end of the year.

7. Run the Annual Tax Adjustment Results process (GPMXAA02) through the Annual Adjustment report to view annual tax adjustment results.

8. (optional) Run the Subsidio Acreditable process (GPMXAA04) through the Annual Adjustment report to display tax subsidy data and have the details of how the system calculated the Subsidio Acreditable for those employees who had multiple employers during the year.

9. Run the Minimum Wage Salary Level process (GPMXAA01) through the Annual Adjustment report to create an addendum to the annual tax adjustment process.

In Mexico, only employers pay state taxes. Each state defines which earning and deduction types are part of its taxable income and the applicable rates.

To process state taxes:

1. Define which earnings and deductions are eligible for state taxes on the State Taxes Earn/Ded page.

2. View and verify state tax rates on the State Taxes Rates page.

3. (optional) Define state and local tax rates at the company level for Chihuahua and Ciudad Juarez on the State Rates by Company MEX page.

   Note: You have to define these taxes only if you have operations in these states or cities.

4. Get the state tax base by company; this is the sum of the tax base per employee working for such company during the payroll period.

   GP Mexico processes payroll by employee, therefore there’s no way to get the State Tax base unless it is manually entered or calculated in a separate process after all payrolls are calculated. If your company goes with the second option then you’ll need to recalculate the payroll in order to calculate State Taxes and store the information in the writable array IE WA REPORTE.

   There are two options to get the Total Base State Tax:

   1. Enter value for variable IE VR BASE EXCPT at Supporting Element Overrides by Pay Groups or any other level, the payroll will take this value as Total Base State Tax.

      Supporting Element Overrides

      

   2. Calculate all payrolls with employees in the given company and then run SQR process GPMXIE01 with the option Generate Positive Input checkbox turned on; the process will generate Positive input for employees in open payrolls working in the selected state and that belong to the company during the selected period.

   Note: Step 4 is only applicable for Campeche, Hidalgo, Queretaro, Oaxaca and Durango states.

5. Process tax contributions during regular payroll runs.

6. Run the State Taxes by Location report every month after the last payroll process of that month.