Income Tax (ISR) is one of the most important tax obligations in Mexico. But why is it important for freelancers to understand how to calculate ISR 2024?

The answer is simple: it affects everyone who generates income within the country, including self-employed individuals. Understanding what it is and how it is calculated is essential for managing the process correctly and avoiding problems with Mexican government entities.

If you want to know how its amount is determined and what steps you need to follow, keep reading.

Everything You Need to Know to Calculate Income Tax (ISR)

What is ISR?

Income Tax (ISR) is a mandatory tax paid in Mexico on income generated during a fiscal year. ISR is categorized as a direct tax because it applies to the earnings obtained. 

This money is managed by the Tax Administration Service (SAT) and used to finance public spending. It is invested in security, public education, infrastructure, hospitals, and public services, among others.

Given the importance of ISR for the Mexican government, failing to pay it implies facing consequences such as fines, surcharges, and other fiscal problems. This includes late annual SAT declarations.

The person who pays ISR does so for almost all economic activities, including:

• Earned interest.

• Received salaries.

• Royalties.

• Professional activities.

• Received prizes.

• Leasing of movable and immovable properties.

• Dividends, profits, and earnings distributed by legal entities, among others.

In the case of freelancers, it covers fees, income from services provided, and any other type of activity that generates income.

Who is Obliged to Pay ISR?

The obligation to declare and pay ISR falls on taxpayers, who must regularly submit declarations to the SAT to comply with tax regulations.

Article 1 of the Income Tax Law (LISR) specifically tells us who pays ISR:

• Individuals: Anyone who resides and works in Mexico, regardless of where their income comes from.

• Legal Entities: Companies in Mexico that generate profits.

• Residents Abroad: Anyone living abroad with a source of income within Mexican territory.

As a freelancer, you are not exempt, as your income from independent activities is considered taxable.

How Much ISR is Paid?

The amount to be paid for ISR varies according to the annual income of each individual or company. Mexico uses a system of progressive rates, which are updated as inflation increases. 

The rates can range from 1.92% to 35%.

As you can see, the higher the income, the higher the applicable rate.

How to Calculate Income Tax for a Worker

If you are a self-employed worker and want to calculate ISR 2024, just follow these steps:

1. Add up all the income earned during a month or a year.

2. Consult the table and select the rate corresponding to your income.

3. Subtract the lower limit from your income to obtain the taxable base.

4. Apply the indicated rate in the table corresponding to the taxable base.

5. Add the fixed fee to obtain the total ISR to be paid.

Income Tax Example:

• Monthly total income: 20,000.00 MXN.

• Range: $8,952.50 - $75,984.55

• Lower limit: $8,952.50

• Fixed fee: $171.88

• ISR percentage on excess: 6.4%

Calculation:

• Monthly income: 20,000.00 MXN.

• Subtract the lower limit: $20,000.00 - $8,952.50 = $11,047.50

• Apply the percentage on the excess: $11,047.50 * 0.064 = $707.04

• Add the fixed fee: $707.04 + $171.88 = $878.92

• The total ISR to be paid is 878.92 MXN.

This example shows how to calculate the ISR for a self-employed worker per month. But if you want to make the process easier, use an ISR calculator.

What Deductions Can I Make from Income Tax?

As a freelancer, you can make various deductions to reduce your taxable base and, therefore, the amount of ISR to be paid. Among the deductions allowed by the Mexican government are all expenses related to your professional activity, such as:

• Work equipment.

• Internet services.

• Office rent.

• Medical expenses.

• School fees.

• Contributions according to SAT requirements.

• The Christmas bonus is subject to ISR retention, as it is tax-exempt up to an equivalent of 30 days of minimum wage.

• Other essential expenses for the provision of services.

To make these deductions and exemptions, it is essential to present the proper documentation when declaring your taxes. It is also important to consider that personal deductions should not exceed five Annual Measurement and Update Units (UMA) or 15% of your total income.

Severance pay is not included in the allowed deductions.

How to Pay Income Tax

Now that you know how to calculate ISR 2024, what are the steps to pay it? The process is as follows:

1. Access the SAT portal with your RFC and password or e.signature.

2. Submit your annual return, detailing your income and deductions.

3. The system will automatically calculate the amount to be paid and provide you with a capture line with the total fee.

4. The last step is to make the payment, either through a bank transfer, in person at any authorized bank, or online.

This means you can transfer only the necessary amount from DolarApp to your bank account if you have dollars. Besides enjoying the best exchange rate, the rest of your money won't devalue.

Finally, remember that ISR payments must be made on time to avoid fines and surcharges.