A common mistake is to calculate the ISR (Mexican income tax withheld from employees) on a finiquito or liquidación as if it were just another payroll. In fact, each item has its own treatment: ordinary pay is taxed with the usual table, while severance has a special exemption and a different method for getting the tax.
Each item, its own rule
| Item | Exempt portion | How ISR on the taxable part is calculated |
|---|---|---|
| Wages and vacation pay | None | Article 96 tax table |
| Vacation premium | 15 UMA per year | Article 96 tax table |
| Aguinaldo | 30 UMA per year | Article 96, or article 174 of the Regulations |
| Severance and seniority premium | 90 UMA per year of service | Rate of the last ordinary monthly salary |
The UMA (Unidad de Medida y Actualización) is the reference unit Mexico uses for tax and social security limits. The aguinaldo is the mandatory year-end bonus.
The separation exemption
Separation payments (severance and seniority premium) are exempt up to 90 UMA for each year of service. In 2026 that equals $10,557.90 per year.
Watch the years of service: any fraction of more than six months counts as a full year.
Step by step for the taxable part of severance
- Take the employee's last ordinary monthly salary.
- Calculate the ISR on that salary.
- Divide that ISR by the salary: the result is the rate.
- Apply that rate to the taxable part of the severance.
Exception: if the taxable part is lower than the last ordinary monthly salary, the rate is not used. Instead, it is added to the rest of the month's income and taxed with the regular table.
Points to watch
- The vacation premium (15 UMA) and aguinaldo (30 UMA) exemptions are annual: subtract whatever was already exempted earlier in the year.
- Round years of service correctly: more than six months counts as a year.
- Keep ordinary pay and severance separate on the payslip, because they are calculated differently.
Legal basis
- Income Tax Law (Ley del ISR), article 93, section XIII.
- Income Tax Law, articles 95 and 96.
- Regulations of the Income Tax Law, article 174.
To review the items themselves, see what is paid in a finiquito and a liquidación.
In Nomikhor, a finiquito or liquidación runs as an off-cycle payroll: ISR is calculated automatically, each item is split into taxable and exempt using the current UMA, and the CFDI (Mexico's electronic payroll invoice) is stamped with no limit.