You Will Pay Less ISR in 2021, and This Is Why

A rule within the ISR law recognizes the deterioration of inflation on your purchasing power.
You Will Pay Less ISR in 2021, and This Is Why
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This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.
This story originally appeared on Alto Nivel

In a year marked by a pandemic, a deep economic recession and uncertainty, there is good news for millions of Mexican workers for the following year: They will pay less income tax (ISR) on their wages.

And how is this going to be possible, if there were no changes in taxes this year? It is because of a rule within the ISR law that recognizes the deterioration of inflation on the purchasing power of Mexicans.

What does it consist of?

As many know, ISR is a progressive tax, that is, those who earn more are charged more, and this is done through rates established in salary ranges . Article 152 of the Income Tax Law says that “when the Accumulated observed inflation since the last month that was used in the calculation of the last update of the amounts established in national currency of the rates contained in this article and in article 96 of this Law, exceeds 10%, said amounts will be updated by the period from the last month that was used in the calculation of the last update and until the last month of the year in which the quoted percentage is exceeded. "

In other words, if the accumulated inflation since the last time the rates were updated exceeds 10%, the ISR rates have to be updated again to recognize the deterioration in the purchasing power of our money.

And how much has inflation risen?

According to the inflation calculator from the National Institute of Statistics and Geography (Inegi), inflation between December 2017, a month prior to the last time the rates were updated, and November 2020 was 10.77% . Then this assumption is fulfilled.

 

And how much ISR is currently paid?

As we said, the ISR is a progressive tax that is calculated from rates. Below these is the annual fee for 2020.

Lower limitUpper limitFixed fee% on excess of lower limit
0.016,942.200.001.92
6,942.2158,922.16133.286.40
58,922.17103,550.443,460.0110.88
103,550.45120,372.838,315.5716.00
120,372.84144,119.2311,007.1417.92
144,119.24290,667.7515,262.4921.36
290,667.76458,132.2946,565.2623.52
458,132.30874,650.0085,952.9230.00
874,650.011,166,200.00210,908.2332.00
1,166,200.013,498,600.00304,204.2134.00
3,498,600.01Onwards1,097,220.2135.00

Source: ISR Law 2020

Suppose someone earns $ 16,000 gross monthly pesos, that is, $ 192,000 pesos per year . Then, the worker must find in what range (lower limit and upper limit) his salary falls.

In this case, it is in the sixth row ($ 144,119.24 pesos lower limit and $ 290,667.65 pesos upper limit), but the ISR will not be calculated on the total salary, but on the surplus that remains between the lower limit and the salary. What proceeds is a subtraction: $ 192,000 minus $ 144,119.24; the result is: $ 47,880.76 pesos.

On that amount, the ISR to be paid will be calculated, which in this range is 21.36%, which in total gives $ 10,227.33 pesos, plus the fixed fee of $ 15,262.49 pesos gives a total of 25,489.82 pesos of annual ISR, or 2,124.15 monthly . As this tax is already withheld from the individual each month with the provisional payments, at the end of the year they can leave with a favorable balance on their annual return.

And how is the rate update calculated?

This is the most complicated part because in the Income Tax Law it is not so clear for all taxpayers who are not familiar with this update, so you can ask your accountant or a specialist to do it for you.

And if you want to do it on your own, this is what the Law says:

"The update factor that results from dividing the National Consumer Price Index of the month immediately prior to the most recent of the period will be applied by the National Consumer Price Index corresponding to the last month that was used in the calculation of the last update . Said update will come into effect as of January 1 of the following fiscal year in which the aforementioned increase occurred . "

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