Chapter. Mexico
This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.
Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations.
The national currency is the peso (MXN). In 2015, MXN 15.87 was equal to USD 1. In 2015, the estimated earnings of the average worker are MXN 105 924 (Secretariat estimate).
1. Personal income tax
1.1. Central government income tax
1.1.1. Tax unit
Each person is taxed separately.
1.1.2. Tax allowances and tax credits
1.1.2.1. Standard tax reliefs
There are two basic allowances, a yearly holiday bonus and an end-of-year bonus.
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Holiday Bonus: Mexico’s Labour Law stipulates a minimum holiday bonus of 25% of six days of the worker’s wage. The maximum exemption according to Tax Law is equivalent to 15 days of the minimum wage (the minimum wage for the whole country).1 Given these two restrictions, the allowance is estimated as the minimum established by the Labour Law, up to the amount that is exempt according to Tax Law.
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End-of-year bonus: The minimum end-of-year bonus established in the Labour Law is 15 days of the worker’s wage. Tax Law exempts end-of-year-bonuses up to 30 days of the minimum wage (the amount for the whole country). The allowance is estimated as the minimum established by the Labour Law, up to the amount that is exempt according to Tax Law.
1.1.2.2. Main non-standard tax reliefs
Deductions:
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Compulsory school transportation costs.
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Medical expenses (doctor and dental fees and hospital expenses): An unlimited deduction is allowed for the taxpayer’s medical expenses. For those made by the taxpayer, on behalf of his or her spouse and straight line relatives, the deduction is allowed only if the person, for whom the taxpayer makes the expense, earns less than the minimum annual wage of his geographical area.
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Complementary contributions of certain retirement accounts are considered eligible as long as they do not exceed 10% of taxable income and MXN 124 702 (five annual minimum wages).
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Funeral charges: for the spouse and straight-line relatives up to a minimum annual wage of the taxpayer’s geographical area.
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Charitable donations made to institutions such as:
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Federal, state, and municipal governments.
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Non-profit organisations involved in the fields of social beneficence, education, culture and research and technology.
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Deposits on special savings accounts, payments of insurance premium of pension plans and for the acquisition of shares of investment societies as long as they do not exceed MXN 152 000.
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Health insurance premiums for individuals, if the beneficiary is the taxpayer, and/or his family.
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Real interest expenditure for the payment of mortgage loans for housing purposes that do not exceed MXN 3 969 905. Real interest expenditure is considered the excess of interest expense over the inflation rate.2
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Deduction of taxpayer’s educational expenditures for himself, on behalf of his/her spouse, parents or children, among others, for the following educational levels.
Since 2014, there is a limitation of the total amount of personal deductions. They cannot be higher than the minimum between 10 % of the taxpayer’s gross income or an amount equivalent to 4 annual minimum wages of the of the taxpayer’s geographical area (MXN 99 762 in 2015). The limit is not applicable to donations or private educational services.
1.1.2.3. Employment subsidy credit
The employment subsidy credit is assigned through a table and this amount is decreasing in the level of income obtained by each worker. For monthly income higher than MXN 7 382, no employment subsidy credit is given. Employees with an income tax lower than the credit receive in cash the difference along with their salary. The rest of the workers that receive the credit are entitled to a reduction in their tax burden. The employment subsidy credit is paid by the employers who may credit it against their tax liabilities; the credit therefore represents a fiscal cost for the government.
1.1.3. Tax schedule and other tables
1.1.3.1. Tax schedule3
Since 2014 three additional brackets were included with a maximum marginal rate for income over MXN 3 million of 35%.
1.1.3.2. Employment subsidy credit table
For taxable income in a certain income range, the employment subsidy credit is given in the third column of the following table:
1.2. State and local income taxes
States do not levy taxes on income.
1.3. Payroll taxes
Mexico does not have a Federal pay-roll tax. However, most States apply a state pay-roll tax with an average rate of 2.25%. These taxes are not considered in this Report since there are a wide range of practices with respect to the definition of the tax base that does not allow obtaining a reliable estimation.
2. Compulsory social security contributions to schemes operated within the government sector
2.1. Employees’ contributions
Social security contributions are divided as follows:
For sickness and maternity insurance, 0.625% of the workers monthly wage, plus 0.40% of the amount in excess of three times the minimal legal wage (the amount that applies within the Federal District of Mexico City MWFD). For disability and life insurance, 0.625% of the monthly wage.
In 2015 a ceiling of 25 MWFD applies to the salary that is used to calculate the social security contributions.
2.2. Employers’ contributions
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For sickness and maternity 20.40% of the MWFD, plus 1.10% of the amount in excess of three times the MWFD, plus 1.75 of the monthly wage.
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For disability and life insurance, 1.75% of worker’s monthly wage.
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For social services and nursery, 1% of worker’s monthly wage.
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For insurance for work injuries of employees, 2.00% of worker’s monthly wage.4
In 2015 a ceiling of 25 MWDF applies to the salary that is used to calculate the social security contributions.
3. Universal cash transfers
3.1. Transfers related to marital status
None.
3.2. Transfers for dependent children
None.
4. Main changes in the tax/benefit system since 1995
The Social Security Law enacted in July 1997 changed fundamentally the financing of non-government employees’ social security, which shifted from a pay-as-you-go scheme to funded individual accounts. The government does not manage these accounts; new private financial institutions were created specifically for this purpose. However, the contractual obligation is between the workers and the government, not with the private administrator of the fund, because legally they are still considered as contributions to social security, independently of who manages the fund. It should be noted that the federal government also contributes to each pension account, and guarantees a minimum pension to every beneficiary of the social security system, again independently of the administration of the fund.
5. Memorandum items
5.1. Method used to identify an average worker and to calculate his gross earnings
The income data refer to average workers. It should be noted that in the sample used for this survey, medium and large size firms are over-represented. In Mexico, there are no state or local government income taxes. Information on non-standard tax reliefs is not available.
Figures for 1999 and subsequent years cannot be compared with preliminary figures from previous editions of this publication for two reasons: first, the wage level of the average worker is now based on observed data instead of being estimated; second, social security contributions taken into account no longer include contributions made by employers and employees to privately managed individual accounts. Contributions no longer included in the calculation of social security contributions are specified in the table below.
5.2. Main employees’ and employers’ contributions to private pension, health, etc. schemes
2015 tax equations
The equations for the Mexican system in 2015 are on an individual basis.
The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables ”married” and ”children”. A reference to a variable with the affix ”_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes ”_princ” and ”_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with ”_spouse” values taken as 0.
Notes
← 1. Until October 2015 there were two minimum wage rates established in Mexico depending upon geographical location (in Zone A the minimum wage is equal to MXN 70.10 on a daily basis and in Zone B it is MXN 66.45. For the purposes of this Report, the calculations are either based on the minimum wage that applies within the Federal District of Mexico City (Zone A) or a representative value for the country as a whole (the average minimum wage is equal to MXN 68.33). The latter is used in the evaluation of the holiday bonus and the end-of-year bonus. In October 2015 minimum wage zone B was homologated to zone A establishing a nationwide minimum wage of MXN 70.1.
← 2. Since 2010, this exemption is applicable only if in the immediate previous five years the taxpayer has not sold any other house for which he/she obtained this exemption.
← 3. The income tax schedule and the employment subsidy credit table are updated every time the accumulated inflation reaches 10%.
← 4. The amount of the work injury fee depends on the risk level in which the company is classified. The Mexican Institute of Social Security provided a weighted average rate that considers the economic activities from C to K of the International Standard Classification.