When the tax year ends, if you withhold ISR (Mexican income tax) on wages, you must calculate each employee's annual tax and compare it with what you withheld month by month. This is known as the annual calculation or annual adjustment, and it tells you whether the employee still owes tax or is due a refund.
Step by step
- Add up the taxable income you paid the employee during the year.
- Apply the annual tax table in Article 152 of the Income Tax Law.
- Subtract the employment subsidy accrued during the year.
- Compare the result with the tax you withheld, net of any refunds.
If the annual tax is higher than what was withheld, there is a balance due, which is withheld from the employee. If it is lower, there is a balance in favor, which the employer must give back.
Who is excluded
| Case | Why they are excluded |
|---|---|
| Started working after January 1 | Did not work the full year for you |
| Stopped working before December 1 | The relationship ended before year-end |
| Had annual income above $400,000 | Must file their own annual tax return |
| Told you in writing they will file their own return | The notice must be given before December 1 |
Key dates
- A balance due is paid to the tax authority no later than February of the following year, together with January withholdings.
- A balance in favor is offset against December's withholding or later months; if that is not enough, the employee can request a refund.
Things to watch
- Confirm that annual exemptions, such as the aguinaldo (mandatory year-end bonus), vacation premium and PTU (mandatory profit sharing), were accumulated correctly during the year.
- Identify early who went above $400,000.
- Keep the written notices from employees who said they will file on their own.
Legal basis
- Income Tax Law, Article 97: annual tax calculation by the withholding agent.
- Income Tax Law, Article 152: annual tax table.
- Income Tax Law, Article 98, Section III: cases in which the employee files a return.
In Nomikhor the annual adjustment is calculated automatically from the full year's taxable and exempt totals, and the monthly adjustment for each period is already built in, so you reach year-end with clean figures.