Treasury Updates the 2026 Income Tax (ISR) Brackets: What Changes in Withholding—and Why You Might Pay Less
Mexico’s Ministry of Finance and Public Credit (SHCP) published an updated set of Income Tax (ISR) rates for individuals for 2026, an adjustment intended to reflect the impact of cumulative inflation in recent years. In practical terms, for salaried employees, self-employed professionals (freelancers), and small businesses with taxable income, the change could translate into slightly lower monthly withholding than in 2025—even if their nominal salary doesn’t increase.
The move follows a period in which the same tax schedule remained unchanged since 2023. Over that span, overall price increases exceeded the reference threshold that typically triggers updates: according to data from Mexico’s national statistics agency (Inegi), cumulative inflation between November 2022 and November 2025 was 13.21%. In that context, updating the brackets (lower and upper limits), fixed fees, and marginal rates aims to reduce “fiscal inflation”—the phenomenon in which people end up paying more taxes simply because their nominal income rises to keep up with higher prices, even though their real purchasing power doesn’t improve.
With the new table—published in the Official Gazette of the Federation (Diario Oficial de la Federación) and used as the baseline for estimated payments and withholding—taxpayers could fall into ranges with more favorable parameters, reducing their effective tax rate. One illustrative example: a gross monthly income of 12,000 pesos faced an effective rate of about 8.61% in 2025 (roughly 1,033 pesos). Under the 2026 schedule, the calculation drops to an effective rate near 7.88% (around 947 pesos), a difference of about 87 pesos per month. The adjustment isn’t uniform: the relief varies by income level and, in general, is most noticeable when shifting the bracket thresholds prevents a taxpayer from “jumping” into a tier with a higher marginal burden.
To understand the impact, it helps to distinguish between the marginal rate and the effective rate. The marginal rate applies only to the portion of income above the lower bound within the applicable bracket, while the effective rate is total tax divided by gross income. That’s why, even with relatively high marginal rates, the overall percentage paid can be lower. In the example of a gross monthly income of 30,000 pesos, the standard process is: identify the applicable bracket, subtract the lower limit from income, apply the marginal rate to that excess (marginal tax), and then add the fixed fee. Using that formula, the resulting monthly ISR for 2026 can be lower than in 2025 for the same income level, based on the new parameters.
This adjustment comes at a time when household budgets remain under pressure from the cost of services, housing, and food, even though headline inflation has moderated from the peaks seen in 2022 and 2023. Mexico’s labor market has also stayed relatively solid in terms of employment, but debates persist over job quality, informality, and real wage growth. In that environment, lower ISR withholding can improve monthly cash flow for some families, though the benefit tends to be limited and does not replace a genuine increase in real wages.
The employment subsidy (subsidio al empleo) is also relevant: workers earning up to roughly the equivalent of one minimum wage typically do not have ISR withheld, due to this mechanism. In most of the country, the approximate monthly reference for the minimum wage is 9,582 pesos, while in the Northern Border Free Zone (Zona Libre de la Frontera Norte) the monthly threshold is around 13,410 pesos. In practice, this means workers with income in that range are exempt from income tax withholding—an important element in income policy for lower-wage households.
From a public finance standpoint, updating the tax schedule may imply slightly lower marginal revenue per person in the short term, although the final effect depends on formal employment performance, wage increases, economic growth, and enforcement capacity. In Mexico, ISR is one of the central sources of tax revenue, and its performance is closely tied to the formal wage bill and business activity. Going forward, the challenge for the tax authority will remain expanding the taxpayer base and reducing informality—which is still high—without slowing productive activity, especially in an environment where investment and nearshoring compete with factors such as infrastructure, security, and regulatory certainty.
For taxpayers, the bracket adjustment doesn’t eliminate the importance of planning their tax situation. Personal deductions, medical expenses, additional retirement contributions, mortgage interest, and other items (when applicable and properly documented) can reduce the burden on the annual return. For independent workers and small businesses, proper invoicing, orderly bookkeeping, and the chosen tax regime often make a bigger difference than the change in the rate schedule itself.
In short, the 2026 ISR update acknowledges accumulated inflation and may slightly reduce monthly withholding across different income levels. The effect will be moderate and uneven among taxpayers, but it helps prevent rising prices from automatically turning into a higher tax burden. Looking ahead, the real impact will be measured not only by the table itself, but also by the path of inflation, formal employment, and economic growth.
