ISR Annual Adjustment — Wage Earners Mexico (Declaración Anual ISR Asalariados)

The ISR Annual Adjustment for Wage Earners Mexico (Declaración Anual de ISR para Asalariados) is the year-end reconciliation calculation performed by an employer (patrón) under Article 97 of the Ley del Impuesto sobre la Renta (LISR), published in the Diario Oficial de la Federación on 11 December 2013, to determine the final annual income tax (Impuesto sobre la Renta — ISR) obligation of each salaried worker registered in the payroll. The employer acts as a withholding agent (retenedor) throughout the fiscal year, deducting provisional ISR from each periodic wage payment under Article 96 LISR, and the annual adjustment reconciles those accumulated monthly withholdings against the definitive annual tax calculated on total annual taxable income.

Article 97 LISR establishes the employer's obligation to perform this annual adjustment calculation for each worker whose annual income from salaries and assimilated income does not exceed $400,000 MXN, and who has not independently opted out of the employer-performed adjustment by submitting Form 74 to the Servicio de Administración Tributaria (SAT) through the portal del contribuyente. Workers earning above the threshold, receiving income from multiple employers simultaneously, or who ceased employment before the end of the fiscal year must file their own annual declaration directly with the SAT using the Declaración Anual platform on the SAT portal.

The Declaración Anual ISR Asalariados operates within the broader framework of income tax withheld at source (retención en la fuente) that characterises Mexico's wage taxation system. Under Article 94 LISR, all remuneration received by an individual from an employment relationship — including base salary, bonuses (bonos), productivity premiums, overtime pay (tiempo extra), benefits in kind (prestaciones en especie), profit-sharing distributions (PTU), and Christmas bonuses (aguinaldo) — constitutes taxable wage income subject to ISR withholding by the employer. Certain items are exempt: the first 15 times the Unidad de Medida y Actualización (UMA) daily value in aguinaldo under Article 93 Section XIV LISR, and the prima vacacional exempt portion under Article 93 Section XIV.

The Servicio de Administración Tributaria (SAT), the Mexican tax authority created under the Ley del Servicio de Administración Tributaria (LSAT) published in the DOF on 15 December 1995, supervises compliance with all ISR withholding and reporting obligations. Employers must report all withholdings made to workers in monthly DIOT-like payroll reports (CFDI nómina) issued as digital tax receipts (Comprobantes Fiscales Digitales por Internet — CFDI) under the Código Fiscal de la Federación (CFF) Article 29, using version 1.2 of the complement for nómina (Complemento de Nómina) as mandated by the SAT's current technical specifications.

The Subsidio para el Empleo (employment subsidy) is a government benefit applied through the payroll under the Decreto del Subsidio para el Empleo published in the DOF on 11 December 2013. Employers reduce the ISR withheld from low-income workers by the subsidy table amount for each monthly or periodic payment period, and then at year-end the annual adjustment reconciles the total subsidy applied against the definitive annual tax owed. If the total subsidy applied exceeds the annual tax, the worker receives a net benefit; if annual tax exceeds withholdings made, the employer collects the difference from the worker's final payments of the year.

The annual adjustment must be completed by the employer before 28 February of the year following the fiscal year under adjustment (for calendar-year taxpayers), and the results are communicated to each worker through the Constancia de Percepciones y Retenciones (Form 37 under Article 99 fraction III LISR), which the worker uses if required to file an individual annual declaration with the SAT. Employers must also report the annual payroll data through the Declaración Informativa de Retenciones e Informes (historically through the DIOT/DIM platform, now embedded in CFDI nómina reporting under Article 99 LISR).

An ISR Annual Adjustment for Wage Earners Mexico is required in every fiscal year in which an employer (patrón) maintains salaried workers on its payroll whose total annual salary income does not exceed $400,000 MXN and who have not individually opted to file their own annual ISR declaration. Article 97 LISR imposes this obligation on the employer as the withholding agent (retenedor), making the annual reconciliation a mandatory payroll process rather than an optional one.

The adjustment is needed after each calendar fiscal year ends — typically completed during January and February — when the employer totals each worker's annual taxable income (base wages, bonuses, benefits subject to ISR, proportional aguinaldo above the exempt portion under Article 93 LISR), applies the annual tariff from Article 152 LISR, subtracts the total Subsidio para el Empleo applicable for the year, and compares the result against the accumulated provisional withholdings made throughout the year under Article 96 LISR.

The calculation triggers three possible outcomes: if accumulated withholdings exceed the definitive annual tax (including subsidy adjustments), the employer generates an ISR refund (devolución) paid directly to the worker in the December payroll or the last payroll of the year; if accumulated withholdings fall short of the annual tax, the employer withholds the difference from the worker's remaining wages; if the amounts match exactly, no adjustment payment is required. Workers who received the Subsidio para el Empleo in excess of their annual ISR may be entitled to a net payment from the employer.

The declaration is also needed when preparing the Constancia de Percepciones y Retenciones issued under Article 99 Section III LISR to each worker by 28 February. Workers who must file an individual annual declaration — those earning above $400,000 MXN annually, those who received income from two or more employers simultaneously, those who claimed non-wage deductions (deduciones personales under Article 151 LISR such as mortgage interest, medical expenses, tuition fees, and retirement fund contributions), or those who received exempt income requiring reporting — use the constancia to populate their annual SAT declaration. The SAT pre-populates the Declaración Anual platform with CFDI nómina data, but workers must verify and confirm accuracy.

The employer must also use the annual adjustment process to correct any errors in monthly provisional withholdings made during the year, adjust for changes in worker circumstances (marriage, dependents, disability recognized by IMSS), and reconcile the total payroll ISR withholdings reported in CFDI nómina receipts against the actual remittances made monthly to the SAT via the portal bancario. Under Article 26 Section I CFF, the employer bears strict joint liability for failures to withhold and remit ISR from worker wages.

A valid ISR Annual Adjustment declaration for Wage Earners Mexico under Article 97 LISR requires accurate computation of all the following components to produce a legally defensible annual reconciliation.

Total Annual Taxable Income: The sum of all salary payments, bonuses, productivity premiums, overtime compensation above the statutory double-rate exempt portion, benefits in kind at fiscal value, aguinaldo above the exempt amount (15 times the UMA daily value under Article 93 Section XIV LISR), and any other compensation paid to the worker during the fiscal year that constitutes ingreso por salarios y en general por la prestación de un servicio personal subordinado under Article 94 LISR. Each item must reconcile with the CFDI nómina receipts stamped through the SAT's sistema de facturación during the year.

Annual ISR Tariff Application: Application of the annual tariff (tarifa anual) from Article 152 LISR to the total annual taxable income. The tariff establishes progressive ISR rates from 1.92% on income above the first bracket threshold to 35% on income exceeding $3,000,000 MXN annually. The employer must use the official annual tariff published by the SAT for the applicable fiscal year — the CFF Article 7-A provides for annual updates to the tariffs based on inflation (INPC adjustments) when the DOF publishes the corresponding Resolución Miscelánea Fiscal (RMF) annual resolution.

Employment Subsidy Reconciliation: Determination of the total annual Subsidio para el Empleo applicable to the worker based on the monthly payments made throughout the year. The annual subsidy table is published in the Resolución Miscelánea Fiscal and must be compared against the total ISR calculated under the annual tariff. If the annual subsidy exceeds annual ISR, the employer pays the difference to the worker; if annual ISR exceeds total subsidy applied, the employer retains the difference from final payroll payments.

Accumulated Monthly Withholdings: The total ISR actually withheld from each periodic payroll payment throughout the year under Article 96 LISR, as reported in each CFDI nómina stamped during the year. This figure must match the monthly ISR remittances made to the SAT through the portal del contribuyente. Any discrepancies — caused by payroll errors, retroactive salary adjustments, or extraordinary payments — must be reconciled in the annual adjustment calculation.

Deductible Personal Payments: Where a worker notifies the employer of personal deductions (deducciones personales) under Article 151 LISR before 31 December — such as medical and dental fees paid to persons registered with the SAT, hospital expenses, funeral expenses, mortgage interest on primary residence under Article 151 Section IV LISR, charitable donations to authorized donatorias under Article 151 Section III, and retirement fund contributions (planes personales de retiro) under Article 151 Section V — the employer may incorporate these into the annual adjustment calculation, reducing taxable income for the year.

Balance Determination and Payment: The final annual adjustment result specifying whether: (a) a net ISR amount is due (cargo) to be collected from the worker's December or final payroll and remitted to the SAT; (b) a refund (devolución) is due to the worker to be paid from the employer's treasury; or (c) no balance exists. The employer must remit any additional ISR collected to the SAT by 28 February under Article 97 LISR Section III.

Constancia de Percepciones y Retenciones: The formal tax receipt (Form 37 equivalent, now embedded in CFDI reporting) issued to the worker under Article 99 Section III LISR no later than 28 February, showing total annual income, total ISR withheld, Subsidio para el Empleo received, and annual adjustment result. Workers may request this constancia in any format from their employer for use in filing their individual annual SAT declaration.

Forms-legal.com provides this ISR Annual Adjustment template as a practical administrative tool for Mexican employers managing year-end payroll tax compliance. All ISR calculations must be verified by a Contador Público Certificado (CPC) registered with the Instituto Mexicano de Contadores Públicos (IMCP) or by a licensed fiscal advisor (asesor fiscal) to ensure compliance with the current Resolución Miscelánea Fiscal, applicable LISR tariffs, and the specific CFDI nómina requirements of the SAT for the relevant fiscal year. Errors in annual ISR adjustments expose employers to surcharges (actualizaciones) and fines (multas) under Articles 76 through 80 of the Código Fiscal de la Federación.