How does Mexico payroll tax work in 2026?

SBC: the salary base for contributions

IMSS contributions apply to the Salario Base de Cotizacion (SBC), not just the base salary. The SBC integrates all recurring benefits: base pay, bonus provisions, vacation premium, aguinaldo (Christmas bonus provision), productivity bonuses, food vouchers above the exempt limit, and other habitual payments. Under-reporting the SBC is a common audit trigger. Teamed calculates the correct SBC from day one of each hire.

State payroll tax (Impuesto sobre Nominas)

Each of Mexico’s 31 states and Mexico City levies a separate state payroll tax on employer wage bills. Rates typically range from 1% to 3% of gross payroll, depending on the state. This is an employer-only cost. It is not collected through IMSS but remitted directly to each state revenue authority. Remote teams spread across multiple states each generate a separate payroll-tax filing obligation.

Employees do not contribute to occupational risk (Riesgos de Trabajo) or to the INFONAVIT housing fund. The employer pays both in full.

The IMSS SBC integrates recurring benefits in the same way it does for employer contributions. An employee who receives regular food vouchers, productivity bonuses, or other habitual payments will have a higher SBC than their nominal base salary, and their IMSS deduction reflects this.

Subsidio al empleo

Low-income workers receive a subsidio al empleo (employment subsidy) that reduces or eliminates their ISR liability. The subsidy is applied in payroll by the employer before remitting withheld ISR to the SAT. Workers earning below approximately MXN 7,382 per month typically pay no net ISR after the subsidy. This is a tax credit, not a personal allowance zero-rate band; the mechanics differ from UK or European income-tax systems.

How ISR withholding works

Employers withhold ISR from each payslip using the monthly tariff tables published by SAT. The monthly table divides the annual bracket thresholds by 12 (or proportionally for biweekly payroll). A year-end regularization (ajuste anual) reconciles the total withheld against the employee’s actual annual ISR liability. Where an employee has only one employer and no other income sources, the employer performs this annual adjustment in the December or January payroll. Employees with multiple income sources or additional deductions must file an annual individual return directly with SAT (declaracion anual).

Mandatory deductible benefits for employees

Several employer-provided benefits are exempt from ISR up to statutory limits. The main exempt items are: food vouchers (vales de despensa) up to 40% of daily UMA per day; transportation assistance within statutory caps; and the aguinaldo (Christmas bonus) exempt up to 30 days of minimum wage. Structuring these benefits correctly reduces employee ISR withholding and makes offers more competitive without increasing the taxable cost to the employer.

The filing obligations an employer must manage in Mexico:

• CFDI de nomina, issued and certified through an authorised PAC (provider) for every payslip at the time each salary payment is made, biweekly for most salaried staff
• Monthly ISR declaration (Declaracion mensual de retenciones), remitted to SAT by the 17th of the following month for each payroll month
• IMSS bimonthly payment, employer and employee IMSS contributions paid in six two-month periods per year to IMSS, typically by the 17th of the month following each two-month period
• INFONAVIT bimonthly payment, employer housing-fund contributions submitted with the IMSS payment cycle
• Annual ISR regularization (ajuste anual), December or January payroll, reconciling cumulative withholding against the annual tariff for employees with a single employer
• Annual IMSS salary declaration (SUA file), confirming or updating registered SBC figures for each employee at the start of each year

Mexico does not have a real-time PAYE reporting system equivalent to the UK’s RTI. The CFDI de nomina serves as the near-real-time payslip record, but payroll tax remittance is monthly, not per-payslip. The mismatch between biweekly payment to employees and monthly remittance to SAT is a common source of cash-flow planning errors for first-time Mexico employers.

1. Collect pay data for the period

   Gather base salary, any variable pay, benefits in kind, and recurring allowances for the biweekly period. Confirm the correct SBC for each employee before running.

2. Calculate gross pay and IMSS SBC

   Total all earnings and confirm the integrated salary base including proportional bonus, vacation premium, and aguinaldo provisions. The SBC is higher than the base salary for most employees.

3. Deduct employee IMSS and apply ISR

   Deduct the employee IMSS contribution from the SBC and apply the monthly ISR tariff table to calculate the withholding amount. Apply the subsidio al empleo credit for qualifying low-income workers before finalising the net figure.

4. Issue the CFDI de nomina

   Stamp the payslip electronically through an authorised PAC at the moment of payment. The certified CFDI is the legal record of the transaction for both SAT and the employee.

5. Remit ISR to SAT by the 17th

   Consolidate all ISR withheld across the payroll month and remit to SAT no later than the 17th of the following calendar month. File the corresponding monthly declaration at the same time.

6. Pay IMSS and INFONAVIT contributions

   Remit IMSS employer and employee contributions plus the INFONAVIT housing-fund payment on the bimonthly IMSS calendar. Late IMSS payments accrue interest and can affect employee benefit eligibility.

Retirement contributions go into an individual AFORE account (Administradora de Fondos para el Retiro). Every employee enrolled with IMSS has an AFORE account. Employers contribute the Retiro (2%) and CEAV tranches; the federal government also makes a small solidarity contribution (cuota social) for lower earners.

CEAV phase-up schedule

The employer CEAV tranche increases annually under a reform that began in 2023. The phased increase is significant for payroll budgeting:

• 2023: 3.15% employer
• 2024: 4.241%
• 2025: 5.331%
• 2026: 6.422% (current year)
• Continuing to 11.875% by 2030

The CEAV rate also varies by salary level relative to the UMA. Higher earners pay a higher CEAV tranche. This makes a simple headline employer IMSS rate unreliable for planning purposes without knowing the specific salary level and industry risk class.

Voluntary pension savings (Aportaciones voluntarias)

Employees can make voluntary additional contributions to their AFORE account through payroll deduction. These are tax-deductible for the employee up to the limits allowed under LISR. Employers are not required to match voluntary contributions but may do so as a benefit. Setting up voluntary contribution deductions in payroll requires coordination with the IMSS SBC calculation to avoid reclassifying voluntary contributions as taxable salary.

Minimum wage floor on IMSS contributions

The minimum salary base for IMSS contributions is one daily minimum wage. At the general minimum wage of MX$ 9,577.22/month (MX$ 39.38/hour), this floor applies automatically. Employees earning above the minimum use their actual SBC for contribution calculations.

Real HR and legal experts handle your Mexico hires, from the first offer letter through every biweekly CFDI, monthly SAT declaration, and bimonthly IMSS payment. An actual person, not a bot queue. There is no setup fee and no exit fee. Employer cost passes through at cost, itemised on every invoice.

Mexico payroll has three separate filing cadences: biweekly CFDI issuance, monthly SAT remittance by the 17th, and bimonthly IMSS payments. Teamed manages all three. The state payroll tax obligation for each state where your employees are based is also included. You get one invoice. One platform covers all of it.

A Mexico contractor who converts to full-time payroll keeps their record. That same employee can graduate from EOR to your own Mexican entity without switching systems. That transition is the right move until it isn't. Run the Employer Cost Calculator to see the full picture before you commit.

Key sources: LISR Art. 96 (SAT ISR withholding), LFT Art. 88 (payroll frequency), and PwC Tax Summaries, Mexico individual income tax.