Payroll taxes in Mexico: An employer’s guide

When you hire in Mexico, you — as the employer — are responsible for calculating, withholding, and submitting payroll taxes from your team members’ pay slips. For some taxes, you are also required to make employer contributions.

In this article, we’ll explain clearly which taxes you need to withhold, which taxes you need to contribute to, and how to remit and make payments. So let’s jump straight in.

What is payroll tax?

Payroll taxes are the contributions employees and businesses make to the government to fund public programs, such as retirement, healthcare, and unemployment insurance. They typically include income tax and social contributions, and are set at pre-determined rates.

These rates (and the rules governing them) vary by country, but it’s every employer’s responsibility to ensure they are compliant, and that they are withholding and submitting the correct amounts.

What is the difference between payroll taxes and corporate taxes?

Generally, payroll taxes are tied to your employees’ wages, while corporate taxes are based on your company’s profits. 

Which payroll taxes do you need to withhold from your employee in Mexico?

In Mexico, the taxes you’ll need to withhold are:

Income tax (ISR)

Mexican residents are taxed progressively based on their level of income. These rates range from 1.92% to 35%.

When to pay: Income taxes must be remitted to the tax authorities monthly.

Social security contributions

Employees must contribute to the government’s social security fund, which provides healthcare, disability, life insurance, and retirement benefits.

Employees are required to contribute approximately 2.775% of their gross salary.

When to pay: These contributions need to be paid bi-monthly.

Note that you may also be required to withhold additional taxes for certain employees, such as child support payments, student loan repayments, or any other court-ordered garnishments.

Which payroll taxes does your business need to contribute to?

As well as withholding the taxes and contributions listed above, you are also required to make your own contributions, as follows:

Employer social security contributions

Employers are also required to contribute to the social security system on behalf of their employees.

You must contribute approximately 17% of your employees’ gross salary, with a maximum annual contribution of MXN 160,215.

When to pay: This must be paid bi-monthly, alongside your employees’ contributions.

State payroll tax

Employers are required to pay a state-level payroll tax, which supports public services and infrastructure.

The rate you’ll need to pay varies by state, but is generally between 1% and 3% of your total payroll in Mexico.

When to pay: This is typically paid monthly to the respective state tax authority.

National Workers' Housing Fund (INFONAVIT)

This is a special employer contribution that is designed to help provide housing support for employees. You will need to contribute 5% of the employee's monthly salary.

When to pay: This tax is paid monthly.

To quickly see a full breakdown of payroll taxes and employment costs for your Mexican hire(s) based on their salary, use our free Employee Cost Calculator tool.

How do you remit and pay payroll taxes in Mexico?

To pay these taxes, you will need to:

1. Ensure you are registered with Mexican Social Security Institute (IMSS) and the Tax Administration Service (SAT).

2. Calculate the correct amounts for withholding. If you use Remote Payroll or Remote EOR, we will do this for you.

3. Ensure that you adhere to the payment deadlines detailed above.

4. Pay through each agency’s online portals, or directly through an authorized bank transfer.

How do you manage payroll taxes as an international employer?

When you hire a Mexico-based team member from abroad, there are several ways you can manage their payroll and payroll taxes.

If you already have your own legal entity in Mexico, you can:

• Handle it in-house. You can hire your own payroll tax specialists and manage everything internally. This can be costly, however.

• Use a local third party. You can hire a local firm to handle payroll, although this can be unreliable, costly, and pose data risks.

• Use a PEO. A professional employment organization (PEO) acts as an outsourced HR provider, and includes payroll.

• Use a global payroll provider. Global payroll providers — like Remote — have local specialists in multiple countries, ensuring that you are fully compliant with all tax requirements in each one. This is especially convenient if you have (or plan to have) employees in different countries, as you can manage all of them through one platform.

If you don’t have your own entity in Mexico and you still want to hire there, you can:

• Set up your own entity. This can be extremely costly and time-consuming, but if you plan on establishing your business long-term in Mexico, it might be a viable approach. To pay your employees, you would then need to choose one of the options above.

• Use an EOR. Employer of record (EOR) providers — like Remote — enable you to quickly and easily hire anywhere in the world, and also handle all the core HR functions (such as compliance and payroll). As well as being generally more cost-effective than opening your own entity, this option is highly scalable and, again, enables you to streamline all your global HR tasks in one place. How does an EOR work?

Global HR —

5 min

EOR, Payroll, or both: What does your business need?

Understand the difference between EOR and payroll services — and clarify which one your business needs to pay your international team members.

What about independent contractors?

In Mexico, independent contractors are classified differently to employees. As a result, they (in most cases) are responsible for calculating, managing, and paying their own taxes.

However, it’s crucial to understand the difference between contractors and employees, as you may inadvertently create misclassification risk. This can result in severe fines and penalties for your business. Learn more about hiring contractors in Mexico.

How can Remote help?

Knowing which payroll taxes you need to calculate, withhold, and contribute to requires local expertise, especially as these rules can — and do — change. And if you make a mistake or fail to comply, the financial consequences can be significant.

Trust G2’s multi-country payroll leader to keep you compliant

Hire and pay your global team with Remote and get access to our team of global taxation experts.

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