Employees are allowed no business-related deductions, although reimbursements of properly supported moving and travel expenses that are deductible to an employer do not represent taxable income to the employee.
A resident is allowed to deduct un-reimbursed medical, dental or funeral expenses for himself and dependants, as well as certain charitable donations.
There are no standard deductions, except that an individual may deduct 50% of residential rental income instead of actual expenses and depreciation of the property.
Residents are also allowed to deduct an amount equal to 30 days minimum wage if they receive an annual bonus from their employer.
Taxable income is taxed in accordance with a progressive table of rates from 3% to a maximum marginal rate of 35%, reproduced in Exhibit 3. It should be noted that this top marginal rate is reached very rapidly.
A resident may obtain a credit to reduce his Mexican tax, payable for any foreign income tax paid on foreign source taxable income, and subject to certain limitations.
A non-refundable low-income credit (subsidy) designed to reduce the tax burden of taxpayers with lower income is granted. This credit is phased out if the taxpayer receives tax-exempt benefits from the employer. For lower levels of income, it may reduce the taxpayer's burden by up to 50% of the tax.
In addition to the low-income credit, there is a refundable credit, which is capped at NPs520.56 for salaries above four times the minimum wage. This credit substitutes the 10% of minimum wage credit applicable up to October 1.
Social Security Taxes
Contributions to the Mexican Social Security Institute are withheld from employees at the rate of 5.15% of covered salaries up to a maximum of 25 times the minimum wage in the Federal District (10 in the case of old age, death and disability insurance), resulting in a maximum employee contribution of around $1,650 dollars per annum.
Local Taxes on Income
A few Mexican states levy a relatively low rate of tax on salaries (but not on income in general), which in most cases is payable by the employer (e.g., the Federal District imposes a 2% payroll tax, payable by the employer).
All resident individuals receiving income during the calendar year are required to file an annual tax return no later than April 30 of the following year in certain instances, such as individuals earning Mexican bank interest only—regardless of the amount thereof. In the case of salaries, the employer is required to compute the annual tax on behalf of the employee unless the employee notifies the employer he will file an annual return.
Payment of Tax
Any unpaid balance of tax is payable upon filling the return. The full tax on salary income and certain interest income is withheld at source.
However, in the case of salaries received by resident individuals from non-resident employers, the law requires such individuals to file monthly advance tax returns to pay an amount equal to the tax withholdings applicable to these wages. The monthly returns are due by the 17th day of the following month.
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