Taxes in Mexico

Mexico operates a comprehensive tax system that includes significant obligations for both employers and employees. Understanding these requirements is crucial for companies operating within the country and for individuals earning income there. The system is administered primarily by the Servicio de Administración Tributaria (SAT), Mexico’s tax authority, and involves various contributions and withholdings related to employment.

Employers in Mexico are responsible for calculating, withholding, and remitting several taxes and contributions on behalf of their employees. These include income tax, social security contributions, housing fund contributions, and retirement savings contributions. Employees, in turn, are subject to income tax on their earnings and may be eligible for certain deductions and credits when filing their annual tax returns. Navigating these complexities is key to ensuring compliance and smooth operations.

Employer social security and payroll tax obligations

Employers in Mexico are required to contribute to several social security and payroll funds based on employee salaries. The primary contributions are made to the Mexican Social Security Institute (IMSS), the National Workers’ Housing Fund Institute (INFONAVIT), and the Retirement Savings System (SAR). Additionally, some states levy a local payroll tax.

Mexican Social Security Institute (IMSS)

IMSS contributions cover healthcare, disability, life insurance, maternity, childcare, and occupational risk insurance. Contributions are shared between the employer, the employee, and the government, calculated based on the employee’s Integrated Daily Wage (Salario Diario Integrado - SDI), which includes base salary plus certain benefits. Employer contribution rates vary depending on the type of insurance and the company’s risk level for occupational hazards.

IMSS Branch	Employer Rate (Approx.)	Employee Rate (Approx.)	Government Rate (Approx.)	Calculation Base
Sickness and Maternity	Varies by SDI level	Varies by SDI level	Varies by SDI level	SDI
Disability and Life (Invalidez y Vida)	1.75%	0.625%	0.25%	SDI
Retirement (Retiro)	2.0%	0%	0%	SDI
Old Age and Advanced-Age Severance (Cesantía en Edad Avanzada y Vejez)	3.150%–7.513% (graduated by SBC in UMAs; rising annually toward 11.875% by 2030)	1.125%	0.225%	SDI
Occupational Risk	Varies by risk class	0%	0%	SDI
Childcare and Social Benefits	1.0%	0%	0%	SDI

Note: "IVM" is not a single contribution rate — Invalidez y Vida, Retiro, and Cesantía en Edad Avanzada y Vejez are three separate branches with different rates and rules, shown separately above. The Cesantía y Vejez employer rate rises gradually each year through 2030 and is graduated by the employee's salary level in UMAs (Unidades de Medida y Actualización), not a flat percentage. INFONAVIT housing contributions (5%, below) are a related but distinct contribution. All rates shown are approximate; exact figures depend on the employee's SBC, salary band, and the applicable year.

National Workers’ Housing Fund Institute (INFONAVIT)

Employers must contribute to INFONAVIT to help employees access housing credits. The employer contribution rate is 5% of the employee’s SDI. There is no employee contribution to INFONAVIT.

Retirement Savings System (SAR)

SAR includes contributions to a retirement fund (Retiro) and a housing sub-account (Vivienda, which is the same as the INFONAVIT contribution mentioned above). The employer contributes 2% of the employee’s SDI to the Retiro sub-account. The employee contributes to the IVM branch of IMSS, which includes a retirement component.

State Payroll Tax

Most Mexican states levy a payroll tax on the total amount of salaries paid by an employer. There is no single federal rate — each state sets its own rate, base, and any exemptions or surcharges, so the applicable rate must be verified with the finance authority of the relevant state before payroll is run. This tax is solely an employer obligation.

Income tax withholding requirements

Employers are responsible for withholding Impuesto Sobre la Renta (ISR), or income tax, from employee salaries and wages. ISR is a progressive tax, meaning the tax rate increases with income. Employers must calculate the monthly withholding based on published tax tables and the employee’s monthly income.

The monthly ISR calculation involves applying the corresponding tax rate to the taxable income (gross income minus certain non-taxable benefits), subtracting a fixed fee, and then potentially applying a tax credit (Subsidio para el Empleo) for lower-income earners.

Here is an example of a simplified monthly ISR tax bracket table (rates and brackets are subject to annual adjustment):

Lower Limit (MXN)	Upper Limit (MXN)	Fixed Fee (MXN)	Rate on Excess (%)
0.01	844.59	0.00	1.92
844.60	7,168.51	16.22	6.40
7,168.52	12,598.02	420.95	10.88
12,598.03	14,644.64	1,011.68	16.00
14,644.65	17,533.64	1,339.14	17.92
17,533.65	35,362.83	1,856.84	21.36
35,362.84	55,736.68	5,665.16	23.52
55,736.69	106,410.50	10,457.09	30.00
106,410.51	141,880.66	25,659.23	32.00
141,880.67	425,641.99	37,009.69	34.00
425,642.00	More	133,488.54	35.00

Note: This is the official 2026 monthly ISR withholding table (SAT, Anexo 8 of the Resolución Miscelánea Fiscal 2026, published in the DOF on December 28, 2025).

Employers must provide employees with a digital payroll receipt (CFDI de Nómina) detailing gross pay, deductions, and net pay.

Employee tax deductions and allowances

While employers handle monthly ISR withholding based on standard calculations, employees can claim certain personal deductions and credits when filing their annual tax return. These deductions can potentially result in a tax refund.

Common deductible expenses for individuals include:

• Medical, dental, psychological, and nutritional professional fees

• Hospital expenses

• Analysis, clinical studies, and prosthetics

• Expenses for specialized glasses

• Funeral expenses

• Donations to authorized donees

• Mandatory contributions to retirement systems

• Voluntary contributions to retirement plans (up to certain limits)

• School transportation expenses (under specific conditions)

• Real interest paid on mortgage loans (up to certain limits)

• Medical insurance premiums (under specific conditions)

• Tuition fees (up to certain limits, depending on education level)

There is an overall limit on personal deductions (excluding medical expenses due to disability, donations, mandatory retirement contributions, and school transportation) equivalent to the lesser of five annual UMAs (Unidad de Medida y Actualización) or 15% of the taxpayer's total annual income.

Employees may also be eligible for certain tax credits, such as the annual ISR credit, which is separate from the monthly Subsidio para el Empleo.

Tax compliance and reporting deadlines

Employers have several ongoing compliance and reporting obligations:

• Payroll Tax Filings: Federal ISR withholding and IMSS contributions are generally paid monthly, typically by the 17th of the following month. INFONAVIT and the retirement/severance/old-age (RCV) contributions are generally paid on a bimonthly cycle. State payroll tax deadlines are set by each state. Treating every contribution as monthly risks an inaccurate compliance calendar.

• Monthly CFDI de Nómina: Issuing digital payroll receipts (CFDI) for each payment to employees is mandatory.

• Payroll CFDI Reporting: Salary and withholding information is reported on an ongoing basis through payroll CFDIs (electronic invoices) rather than a separate annual salary information return — the former DIM salary annex (Declaración Informativa de Sueldos, Salarios, Conceptos Asimilados y Crédito al Salario) ceased to apply starting with the 2017 reporting cycle and should not be treated as a current obligation.

• Annual Employee Tax Returns: While employers withhold tax monthly, employees whose income exceeds a certain threshold, have multiple employers, or wish to claim personal deductions must file an annual ISR return. The deadline for individuals is typically April 30th of the following year. Employers must provide employees with the necessary tax information (Constancia de Sueldos, Salarios, Crédito al Salario y Retenciones) by February.

• IMSS and INFONAVIT Filings: IMSS filings are generally monthly; INFONAVIT and RCV (retirement, severance, old-age) contributions are generally bimonthly. Confirm current cycles, as these differ from a simple "monthly for everything" assumption.

Staying current with these deadlines and requirements is essential to avoid penalties and interest.

Special tax considerations for foreign workers and companies

Foreign individuals working in Mexico and foreign companies operating there face specific tax rules.

Foreign Workers:

• Tax Residency: An individual’s tax obligations depend on their residency status. Generally, individuals are considered tax residents if they have established their home in Mexico or if Mexico is their center of vital interests (more than 50% of their income is sourced from Mexico, or Mexico is their primary professional activity location).

• Residents: Mexican tax residents (including foreigners) are taxed on their worldwide income. Employers must withhold ISR from their Mexican-sourced employment income using the standard progressive rates.

• Non-Residents: Non-residents are generally taxed only on their Mexican-sourced income. The tax rate on employment income for non-residents can vary depending on the duration of their stay and the amount of income earned. Lower income thresholds may be exempt, while higher income is subject to flat rates (e.g., 15% or 30%) without the progressive brackets used for residents. Employers hiring non-residents for work performed in Mexico are responsible for applying the correct withholding rates.

Foreign Companies:

• Permanent Establishment (PE): A foreign company may be deemed to have a permanent establishment in Mexico if it has a fixed place of business or conducts activities through a dependent agent. If a PE exists, the foreign company is subject to Mexican corporate income tax on the income attributable to the PE.

• Employer Obligations: A foreign company with a PE in Mexico that hires employees in Mexico is subject to the same employer obligations (ISR withholding, IMSS, INFONAVIT, SAR, state payroll tax) as a domestic company.

• No PE: If a foreign company hires employees in Mexico but does not have a PE, the tax and social security obligations can be complex. In such cases, the employee might be responsible for self-remitting taxes, or the foreign company might need to register for limited purposes or utilize an Employer of Record service to handle local compliance.

• Tax Treaties: Mexico has tax treaties with many countries. These treaties can impact the tax obligations of foreign workers and companies by providing relief from double taxation or modifying the rules regarding PE and income sourcing.

Navigating the tax landscape for foreign workers and companies requires careful consideration of residency rules, PE status, and applicable tax treaties.