How ISR Tax (Regular) is Calculated for Mexico

Tax on income or ISR is the federal income tax and it's an employee liability. At the end of the fiscal year, a Mexican employer's obligated to report the annual earnings and the total ISR tax withheld during the year.

Settings that Affect ISR Tax Calculations

These sections describe the settings that affect ISR tax calculations.

Parameter	Description
ISR Tax Calculation Method	The ISR tax calculation method used for each earning is dependent on your answer to the ISR tax calculation applicable to this element question displayed in the element template questionnaire.
Payroll Run Type	You can calculate the ISR tax for a month, for a year or for a payroll period. ISR tax is calculated using the values from the ISR tax rates table.
Payroll Frequency	For a payroll run type of Regular, the values from the monthly rate tables are prorated as per the payroll frequency. For the purpose of prorating the values, the average number of days per month is considered to be 30.4 (365/12).
ISR Taxability Rule	The ISR taxability rule determines how the taxes are applied on the earnings. The combination of the primary classification and the secondary classification you select, determines the statutory ISR taxability rule to calculate the Subject and Exempt portions of the earnings.

How is ISR Tax Calculated?

The calculation of ISR tax involves these steps that are automatically triggered during a payroll run.

1. ISR Tax Calculation

   ISR Tax is the sum of the Fix Rate plus the Exceeded Amount of Lower Limit multiplied by the rate specified in the last column in tax rates table. The Exceeded Amount of Lower Limit is the employee's monthly earnings minus the Lower Limit value in the tax rates table.

   For example, suppose an employee's monthly earnings is 3000 pesos for a semimonthly payroll. This table shows the applicable values from the ISR Tax Monthly Rates table:

   Parameter	Monthly Value
   From value	4,910.19
   To Value	8,629.20
   Fixed Rate	288.33
   Tax Rate	10.88 %

   This table shows the ISR tax computation:

   Step	Value
   Up Factor = 30.4 / 15	2.026667
   Subject Income = 3000.00 * 2.0267	6080.00
   Lower limit (A)	4910.19
   Rate D = 6080.00 - 4911.19	1169.81
   Rate %	10.88%
   Marginal Tax = 1169.81 * 0.1088	127.28
   Fix Rate ( C )	288.33
   Tax Calculated = 127.28 + 288.33	415.61

   Note: For a monthly payroll, the rates are used directly as given in the table and without applying the proration factor.

2. ISR Subsidy for Employment Calculation

   Here's the ISR Subsidy for Employment calculation:

   1. The appropriate range for Subject Basis is determined.

   2. The Subsidy for Employment is calculated:

      Subsidy for Employment = Subject Basis - ((Fix Rate / 30.4) * Payroll Frequency Days)

   These tables show the ISR Subsidy for Employment values and calculation respectively for the employee mentioned in the earlier section. Since the calculation is for a semimonthly payroll, the values in the table are prorated for 15 days as given here.

   Parameter	Monthly Value
   To Value	6224.67
   From Value	5335.43
   Flat Amount	294.63

   Parameter	Value
   Frequency Days by Period in Month = 15 * 1	15
   SE Up Factor = 30.4 / 15	2.026667
   SE Down Factor = (1 / 30.4) * 15	0.493421
   SE Balance MTD	0.00
   Subject ISR (MTD + RUN)	3000.00
   SE Projected	294.63
   SE Prorated = 294.63 * 0.493421	145.38

   The Subsidy for Employment can't exceed the maximum limit of 145.38.

   If the payroll frequency is different than a monthly frequency or there are additional payroll runs in the same month then the Subsidy for Employment adjustment is used.

3. ISR Tax Withholding Calculation

   The ISR Tax element fast formula includes the code to calculate the Tax to withhold or the Subsidy for Employment Paid.

   The Tax to Charge from an employee is: ISR Tax - ISR Subsidy for Employment.

   Note: If the ISR Subsidy for Employment is greater than the ISR Tax then the exceeded amount is paid to the employee else the amount is withheld.

   Step	Value
   Down Factor = (1 / 30.4) * 15	0.493421
   Tax Calculated= 415.61 * 0.493421	205.07
   Subsidy for Employment	145.38
   Tax to Charge = 205.07 - 145.38	59.69
   ISR Tax to Withhold	59.69
   Subsidy for Employment Paid	0.00