Finance Ministry Updates the 2026 Income Tax (ISR) Brackets: Inflation Adjustment Will Reduce Monthly Withholdings
Mexico’s Ministry of Finance and Public Credit (SHCP) published the 2026 Income Tax (ISR) rate tables for individuals, incorporating an inflation adjustment that, in practice, can translate into lower monthly withholdings for salaried workers, self-employed professionals (freelancers), and microbusiness owners—so long as their nominal income does not rise by the same proportion. The change comes after several years with the same bracket structure, which had caused inflation to “push” some taxpayers into paying proportionally more, even without any real improvement in their purchasing power.
The adjustment reflects the fact that the overall price level has posted a double-digit cumulative increase since the last benchmark used to update the table. In Mexico, when ISR brackets do not move in step with inflation, so-called “bracket creep” increases: with nominal wage increases—or even without them—people can end up in brackets with relatively higher fixed charges and marginal rates in real terms. By updating lower and upper thresholds, the government is trying to keep the tax more closely aligned with taxpayers’ real income.
An example illustrates the effect: a taxpayer earning 12,000 pesos per month in gross income would have paid in 2025 an effective rate near 8.6% (about 1,033 pesos). Under the 2026 table, the withholding would be around 7.9% (approximately 947 pesos), or about 87 pesos less per month. While the exact percentage changes depending on income level, the mechanism is the same: brackets, fixed charges, and the rates applied to income above the threshold are recalibrated to soften the impact of inflation.
To understand why the adjustment matters, it helps to remember that ISR is one of the pillars of Mexico’s federal revenue. In an environment where public spending faces pressure (the debt’s financing cost, investment needs in infrastructure and social programs, and commitments tied to entities such as Pemex), the Finance Ministry is trying to balance two goals: protect the tax base in real terms and maintain certainty for taxpayers and employers responsible for withholding. In that sense, the inflation update is not necessarily a discretionary “tax cut,” but rather a technical realignment provided for in the rules to prevent distortions.
How is monthly ISR calculated under the 2026 table? The general procedure remains the same: (1) find the applicable bracket in the monthly table; (2) subtract the lower threshold from taxable income; (3) apply the marginal rate to the excess to get the “marginal tax”; and (4) add the bracket’s fixed charge. For example, with monthly income of 30,000 pesos, the taxpayer falls into the corresponding line (with its lower threshold, fixed charge, and rate on the excess); after subtracting the lower threshold and applying the marginal rate, the result is added to the fixed charge to estimate withholding. With the 2026 update, for that income level the effective rate is also lower than in 2025, so the monthly withholding would be smaller.
Beyond the table itself, the final amount each person pays can vary due to deductions and credits claimed on the annual return (medical expenses, real mortgage interest, additional retirement contributions, among others, when applicable and when requirements are met). For employees, the employer typically withholds month by month; for independent workers and small businesses, provisional payments and accounting determine the amount, so tax planning and staying formal remain key to avoiding sizable differences at year-end.
The treatment of the employment subsidy (subsidio al empleo) also stands out; in practice, it prevents ISR from being withheld from those earning around the minimum wage. In most of the country, the monthly threshold associated with the general minimum wage is covered by the subsidy; in the Northern Border Free Zone (Zona Libre de la Frontera Norte), the threshold is higher due to the region’s higher minimum wage. This matters because Mexico has sustained significant minimum-wage increases in recent years; maintaining a design that does not “penalize” the lowest incomes with ISR is part of the system’s distributional goal.
Looking ahead, the impact of the 2026 table will depend on the path of inflation and wage adjustments. If nominal increases track inflation, updating brackets helps prevent the tax burden from rising due to a purely statistical effect. However, if inflation reaccelerates or bracket updates lag again, bracket creep could return. At the same time, the SAT’s increased digital enforcement and the widespread use of electronic invoices continue to boost collection capacity, so public debate often focuses not only on rates, but also on simplification, incentives to formalize, and certainty for taxpayers.
In short, the 2026 ISR table includes an inflation adjustment that can reduce monthly withholdings and correct distortions that have built up in recent years, with effects that vary by income level and tax regime. The measure improves the link between taxes and purchasing power, though its real reach will depend on how prices and wages evolve, as well as taxpayers’ ability to use deductions and stay current on their obligations.
