Managing Taxation

This chapter provides an overview of tax processing and discusses how to:

• Update annual tax adjustments.

• Calculate the subsidy factor.

• Processing inter-company transfers.

• Run tax reports.

• View delivered tax elements.

See Also

Defining Taxation

Understanding Tax Processing

This section discusses:

• Taxes in Mexico.

• Tax methods.

• Federal tax processing.

• Annual tax adjustments processing.

• State tax processing.

Taxes in Mexico

Employers are legally required to maintain and report a variety of tax data about their employees. Global Payroll for Mexico delivers much of the set up information needed to calculate taxes in the system.

Tax Methods

With Global Payroll for Mexico, you can define the method for calculating employees' taxes on the General Parameters page.

The tax methods are:

• For regular earnings where ISR Art. 113 is applicable, the following tax methods are available:

  • Annual projection method.

  • Semimonthly projected ISR.

  • Without adjustment.

  • Adjustment during the month.

  • Adjustment at the end of the month.

• Article 112 LISR (Severance pay method).

• Article 142 RISR (Vacation Premium, Profit Sharing, and Christmas Bonus method).

• Article 148 RISR (Multiple months payment method).

This section discusses each tax method.

Annual Projection Method

This method projects the taxable base of the pay period as well as projecting the annual taxable base that will accrue for the employee in the annual form. This projection is calculated using annual tables. Once the annual tax is determined, a factor is calculated that divides the taxable base of the pay period by the annual projected taxable base. To determine the tax for the pay period, the projected annual tax is multiplied by the factor and this is equal to the period tax.

Semimonthly Projected ISR

For employees who are on a semimonthly projected ISR payroll, the system projects their salaries for the next period, taking into account that the projection will be made in every pay period and subtracting the tax retained in the previous periods.

The semimonthly projected tax method applies to all types of employees (hourly and salaried) with a semimonthly pay frequency.

Without Adjustment

Depending on the pay frequency, the system will divide the taxable base by the number of worked days and the result will be multiplied by the Day Factor (defined on the General Parameters page). The result will be the monthly taxable base. Then, the system will calculate the taxes to this monthly taxable base. Immediately after calculating the taxes (Articles 113, 114, and 115), the system divides the resulting tax amounts by the Day Factor and multiply the result by the number of worked days. This result gives us the proportional taxes that correspond to the pay period taxable base.

See Defining General Parameters.

Adjustment During the Month

This method works the same way as the Without Adjustment method, but takes into consideration all the accumulated taxable earnings for the month. For example, if your company is running a weekly payroll, and you are currently running payroll for the third week of the month, the system will consider the taxable earnings from the two previously paid periods of the month as well as the current pay period. The same consideration is applied to worked days.

Adjustment at the End of the Month

This method is the same as the Without Adjustment method for all pay periods that are not the final one in a single month. This method is also similar to the Adjustment During the Month method for the pay period that is the final one in a single month.

Article 112 LISR (Severance Pay Method)

The system calculates the tax of one month salary for the employee using the method from Article 113. Once calculated, this tax will be divided by the monthly salary in order to determine a Tax Factor. Then, the severance pay taxable base will be multiplied by this factor in order to determine the Article 112 LISR tax amount.

Article 142 RISR (Vacation Premium, Profit Sharing, and Christmas Bonus Method)

The Article 142 RISR method is calculated in this way:

1. The taxable base is divided by 365 and multiplied by 30.4 in order to determine a monthly taxable base.

2. The result of this calculation is added to the regular taxable base of the pay period (the one used for the Article 113 tax method). Then, the system calculates the tax to this new taxable base based on the Article 113 method.

3. The tax for one month salary for the employee is calculated using the Article 113 method.

4. The difference between the tax from Step 2 and Step 3 is calculated.

5. The result from Step 4 is divided by the result from Step 1. This results in the Tax Factor.

6. The taxable base for Article 142 RISR is multiplied by the Tax Factor calculated in Step 5 in order to determine the tax.

Article 148 RISR (Multiple Months Payment Method)

The Article 148 RISR method is calculated in this way:

1. The taxable base is divided by the number of days that corresponds to the earnings. For example, a quarterly bonus payment is divided by the number of calendar days in the quarter. The result is multiplied by 30.4 in order to determine a monthly taxable base.

2. The result from Step 1 is added to the regular taxable base of the pay period (the one used for the Article 113 tax method). Then the system calculates the tax to this new taxable base based on the Article 113 method.

3. The tax for one monthly salary for the employee is calculated using the Article 113 method.

4. The difference between the tax in Step 2 and Step 3 is calculated.

5. The result from Step 4 is divided by the result from Step 1. This results in the Tax Factor.

6. The taxable base for Article 148 RISR is multiplied by the Tax Factor calculated in Step 5 in order to determine the tax.

Federal Tax Processing

To process federal taxes:

1. Define general tax parameters on the General Parameters page.

2. Process tax contributions during regular payroll runs.

3. Run the Federal Taxes report at the end of the tax year.

See Also

Defining General Parameters

Defining Federal Taxes

Running Tax Reports

Annual Tax Adjustments Processing

During a calendar year, there may be times when too much or too little tax is paid because of varying incomes or other circumstances. The annual income tax adjustment process corrects this problem.

You can identify employees who don't qualify for an annual tax adjustment. This includes employees who have:

• Terminated and were rehired and the company decides not to adjust taxes.

• Notified you in writing that they plan to present their tax adjustment themselves (self-presentation).

  This could be based on several reasons. One reason is when an employee has earned more than the government-allowed income limit and must self-present their tax adjustment data.

To process tax annual adjustments:

1. Define annual adjustment parameters on the Annual Adjustments page.

2. Define an annual period and create the calendar for the pay groups that you will run on the Calendar Definition page in the core application.

3. Enter tax data from Form 37 on the Define Prior Employer Data MEX page.

   Form 37 details tax data for employees you hire mid-year who worked for another company earlier in the same tax year. The system processes this information during the annual tax adjustment and that's why it's important to have this information entered prior to the annual adjustment process.

4. Identify payees who don't qualify for an annual tax adjustment on the Payees Without Adjustment page.

5. Run the Form 37 report for employees who are going to present their own annual adjustment tax data.

   You can also run this report at other times of the year. For example, you may also want to provide this information to terminating employees.

6. Run the Annual Adjustment Tax process (PL AJUSTE ANNUAL) at the end of the year.

7. Run the Annual Tax Adjustment Results process (GPMXAA02) through the Annual Adjustment report to view annual tax adjustment results.

8. (optional) Run the Subsidio Acreditable process (GPMXAA04) through the Annual Adjustment report to display tax subsidy data and have the details of how the system calculated the Subsidio Acreditable for those employees who had multiple employers during the year.

9. Run the Minimum Wage Salary Level process (GPMXAA01) through the Annual Adjustment report to create an addendum to the annual tax adjustment process.

See Also

Defining Annual Tax Adjustments

Running Tax Reports

Using Calendars

State Tax Processing

In Mexico, only employers pay state taxes. Each state defines which earning and deduction types are part of its taxable income and the applicable rates.

To process state taxes:

1. Define which earnings and deductions are eligible for state taxes on the State Taxes Earn/Ded page.

2. View and verify state tax rates on the State Taxes Rates page.

3. (optional) Define state and local tax rates at the company level for Chihuahua and Ciudad Juarez on the State Rates by Company MEX page.

   Note. You only have to define these taxes if you have operations in these states or cities.

4. Process tax contributions during regular payroll runs.

5. Run the State Taxes by Location report every month after the last payroll process of that month.

Note. The State Taxes Earn/Ded page, the State Taxes Rates page, and the Spec. Taxes Rates page are described in another chapter in this PeopleBook.

See Also

Defining State Taxes

Running Tax Reports

Updating Annual Tax Adjustments

This section discusses how to:

• Enter earnings and tax data from other employers.

• Define payees without adjustment.

• Enter share earnings and travel expense information for Form 37

• Generating lists of employees that do not qualify for subsidies.

• Maintaining the non-subsidy periods for selected employees.

Overview of Employee Subsidies

Employment subsidies are paid only once for multiple jobs. To indicate whether the employer will pay employment subsidies to employees in specific jobs, PeopleSoft has added new functionality to determine whether the payroll should calculate employment subsidies or not.

In addition, PeopleSoft has developed a set of rules to calculate employer subsidies. We have also added effective dating to existing elements to inactivate tax credits and new elements to corresponding sections. The limit for annual adjustment has been raised to 400,000 MXN. We also added new functionality to the General Parameters page for subsidy methods.

Users can now indicate by employee record if the subsidy should not be calculated because it's already being calculated somewhere else. The default, however, is to pay everyone the employment subsidy unless a manager or administrator has created a record on the Maintain Employee Subsidy MEX page for an employee. The page includes date parameters for when the employee may not receive a pay subsidy.

Pages Used to Update Annual Adjustments

Entering Earnings and Tax Data From Other Employers

Access the Define Prior Employer Data MEX page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Define Prior Employer Data MEX, Define Prior Employer Data MEX).

Employer	Enter the name of the previous employer.
Earning/Deduction Code	Select the type of earning or deduction that appears on the Form 37.
Amount	Enter the amount of the specific earning or deduction.

Defining Payees Without Adjustment

Access the Specify No Year-End Adj MEX page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Specify No Year-End Adj MEX, Specify No Year-End Adj MEX).

Insert Data	When you select Insert Data, the system will populate a list of employees who earned more than the government-allowed income limit that is indicated in the Earned More Than field.
Company	Select the company for which the payees work.
Earned More Than	Enter the government-allowed income limit.
EmplID	Select employees who will not be included in the annual tax adjustment process.
Adjustment Type	Define the adjustment type for the payee. Values are Self Presentation and Terminated & Rehired.

Entering Share Earnings and Travel Expense Information for Form 37

Access the Form 37 Additional Data MEX page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Form 37 Additional Data MEX, Form 37 Additional Data MEX).

Employee ID, Name, Empl Rec Nbr, and Company

This information is display only. The system transfers this information from the previous page when you click Add.

Share Earnings and Travel Expenses

Generating Lists of Employees That Do Not Qualify for Subsidies

Access the Employees Without Subsidy MEX page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Employees Without Subsidy MEX, Employees Without Subsidy MEX).

Selection Criteria

Employee List

This section displays the employees that match the selection criteria that you entered in the top portion of the page. They appear after you click Select Matching Employees. You can also add employees to the list by clicking the Add button. If you use this method, the Add Employee Subsidy Information page appears and you can use the Employee ID field to select employee that you want to add to the list.

Maintaining the Non-Subsidy Periods for Selected Employees

Access the Maintain Employee Subsidy MEX page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Maintain Employee Subsidy MEX, Maintain Employee Subsidy MEX).

After you select the employee from the search page, the system displays the page shown above. You can also access this page by clicking the Add button from the Employees Without Subsidy MEX page.

Processing Inter-Company Transfers

This section discusses how to:

• View payee details for inter-company transfers.

• Run the inter-company transfer process.

See Also

Setting Up Inter-Company Transfer Processing

Pages Used to Process Inter-Company Transfers

Viewing Payee Details for Inter-Company Transfer

Access the Inter-company Payee Detail MEX page (Global Payroll & Absence Mgmt, Payee Data, Taxes, Inter-Company Payee Detail MEX, Inter-Company Payee Detail MEX).

The system loads data from Human Resources into this table for employees with new job data rows where the specified action and reason code combination qualifies for processing of inter-company transfers. The system also updates the data on this page after a user runs the Inter-Company Transfer process by displaying the ID of the user who ran the process and a reason value.

Payee Transfer Detail

The system displays details of the employee's job data record related to inter-company transfers. Details include the effective data of the job data record that qualified for internal transfer processing, the old company of the employee, the qualifying action reason for the inter-company transfer, the user ID of the person who made the change, and the reason. The system displays the user ID and reason values only after a user runs the Inter-Company Transfer process to indicate that the processing is complete.

Calendar Detail

The system displays the calendar group ID, pay group, and calendar of the payee. Use these values when running the Inter-Company Transfer process.

Running the Inter-Company Transfer Process

Access the Inter-Company Transfer MEX page (Global Payroll & Absence Mgmt, Taxes, Inter-Company Transfer MEX, Inter-Company Transfer MEX).

Run Control ID Processing

Calendar IDs

The system displays the calendars and their associated run type, payment date, and calculate thru date.

Calculating the Subsidy Factor

This section provides an overview of the subsidy factor:

Understanding the Subsidy Factor

Every year, companies in Mexico need to calculate their subsidy factor based on the earnings and deductions of a single year. This subsidy factor is used to determine the creditable and non-creditable portions of taxes that are going to be calculated during the federal tax calculation process.

Due to recent tax laws, all employees will have their subsidy calculated using the following formula:

Subsidy Proportion = Total taxable base / Total earnings in the last year.

Here is an example of the subsidy factor calculation, using an employee's data for the year 2001. The amounts shown are in Mexican pesos.

Subsidy Proportion = Total Taxable Base 2001 / Total Earnings in 2001

Subsidy Proportion = 200,470.00 / 243,083.00 = .82

You will use this subsidy proportion to calculate the non-creditable subsidy and creditable subsidy for all employees in the company.

For example:

1 - .82 = .18 x 2 = .36

.36 = Non-creditable subsidy

The subsidy proportion (.82) is subtracted from 1 (which is 100 percent of the subsidy proportion) and then multiplied by 2 (formula provided by law) to find the non-creditable subsidy.

1 - .36 = .64

.64 = creditable subsidy

The non-creditable subsidy (.36) is subtracted from 1 (which is 100 percent of the subsidy proportion) to find the creditable subsidy (.64) that will be accredited to an employee's taxes.

Running Tax Reports

This section lists the tax reports available in Global Payroll for Mexico.

Pages Used to Run Tax Reports

See Also

Global Payroll for Mexico Reports

Viewing Delivered Tax Elements

This section discusses:

• Delivered federal tax earnings.

• Delivered federal tax deductions.

• Delivered annual adjustments deductions.

• Delivered annual adjustment process list.

• Delivered state tax deductions.

Delivered Federal Tax Earnings

This table lists the delivered federal tax earnings element:

Delivered Federal Tax Deductions

This table lists delivered federal tax deductions:

Delivered Annual Adjustments Deductions

This table lists delivered annual adjustments deductions:

Delivered Annual Adjustment Process List

This table lists the delivered annual adjustment process list element:

Delivered State Tax Deductions

This table lists delivered state tax deductions:

Note. The PeopleSoft system delivers a query that you can run to view the names of all delivered elements designed for Mexico. Instructions for running the query are provided in the PeopleSoft Enterprise Global Payroll 9.1 PeopleBook.

See Also

Understanding How to View Delivered Elements