Understanding Mexican Payroll Taxes: Navigating Benefits, Withholdings, and Contributions

Employment Subsidy

Tax authorities provide benefits to employees with low income levels, for example, workers earning the minimum wage in Mexico, by subsidizing their income tax. Therefore, in these cases, companies need to withhold less.

Social Security: A Component of Mexican Payroll Taxes

Social Security is part of Mexican payroll taxes. For more information on this topic, read our in-depth article on social security in Mexico. However, in this article, we will provide a basic summary.

Let’s Start with Some Context

The Mexican Social Security Institute, or IMSS, is responsible for social security in Mexico. Its mission is to provide medical care and social security to all Mexican workers or employees. Therefore, every Mexican employee in the private sector is entitled to social security benefits.

Both workers and companies must contribute to social security. However, the company is responsible for withholding this contribution and paying it to the IMSS. At first glance, this may seem costly, but it also has benefits. For example, when a working mother takes maternity leave in Mexico, the institute covers 100% of her salary for 12 weeks.

INFONAVIT: Social Housing in Mexico

Employers must contribute to workers’ social housing as part of social security. Although social housing is managed by a different institute called the National Housing Fund Institute (INFONAVIT), it is part of social security and is closely related to the IMSS.

Employer-Employee Fees

The total amount paid to the IMSS is called Employee-Employer Fees or Cuotas Obrero-Patronales. The company (employer) is responsible for paying it. However, the employee contributes a proportion of the payment. The idea is that they are contributing a small proportion of their salary to the payment of their social security. Therefore, to calculate payroll taxes in Mexico properly, we must understand the deductions that go to the IMSS and INFONAVIT.

Calculating Payroll Taxes in Mexico

Calculating the Base Listed Salary (BLS)

According to Article 27 of Mexico’s Social Security Law, benefits are calculated based on the employees’ Base Listed Salary. The main difference with the regular salary is that it includes bonuses, commissions, etc.

The Base Listed Salary (BLS) is a fundamental element in the calculation of social security contributions and benefits in Mexico. It is used as the basis for determining the fees that both employers and employees must pay to the Mexican Social Security Institute (IMSS).

To calculate the BLS, all cash payments made to the worker must be considered, including:

• Daily Salary
• Bonuses
• Premiums
• Commissions
• In-kind Payments

Once all these elements have been identified, they are added together to obtain the total cash payments made to the worker over a specified period, usually a month.

It is important to note that the BLS does not include non-monetary benefits such as the use of company vehicles, life insurance, or representation expenses. Only cash payments received by the worker as part of their salary are considered.

Once the BLS is calculated, it is used as the basis for determining the fees that both the employer and the employee must pay to the IMSS. Therefore, it is crucial to accurately calculate the BLS to ensure that contributions are accurately determined.

Calculating Payroll Tax in Mexico for a $10,000 Salary

In the state of Querétaro, Mexico, for example, the employer payroll tax would be 2.5%. This percentage is directly applied to the regular salary, which in this case is $10,000, and is entirely paid by the company.

Regarding the withholding tax on the salary, we would first need to find the income level in the Individual Income Tax Table.

In summary, for a salary of $10,000 in Querétaro, the payroll taxes would be:

●      Social Security: $2,997.32 (borne by the company) and $262.46 (borne by the employee).

●      Payroll Tax: $250 (borne by the company) and $0 (borne by the employee).

●      Withholding Tax (Income Tax): The income level needs to be determined to calculate this amount.

In total, the taxes would amount to $3,247.32 for the company and $262.46 for the employee, excluding the income tax, which depends on the income level.

Conclusion

Payroll taxes in Mexico can be complicated, but they are not impossible to understand. You just need to know the underlying concepts and the rates that apply. At Start-Ops, we help by taking care of all the administrative hassle involved in opening an office in Mexico. We specialize in providing comprehensive soft landing solutions. For everything your company needs to establish itself in Mexico, you can rely on us.

If your company is considering exploring nearshore options, get in touch with us. We can develop a business plan that takes into account all the costs involved in moving part of your company to Mexico.

Conclusion

Navigating payroll taxes in Mexico may seem daunting, but with a clear understanding of the underlying principles and applicable rates, it becomes manageable. At Start-Ops, we specialize in streamlining the administrative burdens associated with establishing an office in Mexico. Our expertise lies in providing comprehensive soft landing solutions, ensuring a smooth transition for your business.

Whether you’re a startup or an established company, our team is equipped to handle all aspects of your expansion into Mexico. From understanding local tax regulations to managing payroll complexities, we’ve got you covered. You can trust us to handle the intricacies of payroll taxes, allowing you to focus on growing your business.

If your company is considering nearshore options, Mexico presents an attractive opportunity. By leveraging our services, you can develop a strategic business plan that accounts for all the costs associated with relocating part of your operations. Our goal is to make your transition as seamless as possible, enabling you to capitalize on the benefits of expanding into Mexico’s dynamic market.

Get in touch with us today to learn more about how Start-Ops can support your business expansion efforts. Together, we can navigate the complexities of payroll taxes and lay the groundwork for your success in Mexico.