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You will pay less ISR in 2021 and that’s why

This will be possible due to a rule in ISR law that recognizes the deterioration in inflation in your purchasing power.

4 min read

You will pay less ISR in 2021 and that’s why
You will pay less ISR in 2021 and that’s why

This story originally appeared at high level

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

And how will that be possible if taxes don’t change this year? It is a rule within ISR law that recognizes the worsening inflation of the purchasing power of Mexicans.

What is it made of?

As many know, ISR is a progressive tax, meaning that those who earn more are charged more. and this is done through rates set in salary rangesArticle 152 of the Income Tax Act states: “As the cumulative observed inflation since the last month used for the calculation of the last update of the amounts set in national currency of the rates contained in this Article and in Article 96 of more than 10% this By law, these amounts are updated for the period from the last month used to calculate the last update to the last month of the year in which the specified percentage is exceeded. “

In other words, If the cumulative inflation exceeds 10% since the last interest rate update, the ISR rates need to be updated again to see the deterioration in the purchasing power of our money.

And how much has inflation risen?

According to the inflation calculator of the National Institute of Statistics and Geography (Inegi) Inflation between December 2017, one month before the last interest rate update, and November 2020 was 10.77%. Then this assumption is fulfilled.

And how much ISR is currently being paid?

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

Lower limitUpper limitFixed price% if the lower limit is exceeded
0.016,942.200.001.92
6,942.2158,922.16133.286.40
58,922.17103,550.443,460.0110.88
103,550.45120,372.838,315.574 p.m.
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
3,498,600.01Continue1,097,220.2135.00
Source: ISR Act 2020

Accept that someone is making $ 16,000 gross pesos per month, or $ 192,000 pesos per year. The employee must find out in which range (lower 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 is not calculated based on total salary, but based on the excess that remains between the lower limit and the salary. The proceeds are a subtraction: $ 192,000 minus $ 144,119.24; The result is: 47,880.76 pesos.

The ISR to be paid is calculated on this amount, which is 21.36% in this area, making a total of 10,227.33 pesos plus the fixed fee of 15,262.49 pesos gives a total of 25,489.82 pesos annual income tax or 2,124.15 pesos monthly. Since the individual has already withheld this tax every month with preliminary payments, they can leave at the end of the year with a favorable balance for their annual return.

And how is the rate update calculated?

This is the most complicated part as it is not that clear in the Income Tax Act to all taxpayers who are unfamiliar with this update. You can therefore ask your accountant or a specialist to do this for you.

And if you want to do it yourself, the law says this:

“The update factor obtained by dividing the National Index of Consumer Prices for the month immediately preceding the last of the period is applied by the National Index of Consumer Prices corresponding to the last month used to calculate the last update. This update will take effect on January 1 of the following financial year in which the aforementioned increase took place.. “

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