Tax method: Exceptional annual payments 

Definition

This method is based on article 142 of the regulations.

It is mainly used for complimentary annual payments, holiday payments and share-related payments, but can also be used for any other annual payment.

Firstly it must be determined whether the payment is ordinary or not. In order to do so, processing class 61 can be used, irrespective of whether or not a part of it is exempt. Please refer to the Implementation guide, under section Wage Calculation Mexico ® Tax ® Income tax ® Determination of tax exemptions.

There are various options available with this method:

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       1.      Option 1:

                            a.      Step 1: Firstly, a monthly proportion of the annual payment must be obtained. Supposing it is a complementary annual payment:

Monthly proportion = (taxable complimentary payment) * 30.4

365

30.4 is the number of days in a monthly period and is determined by the value of constant TDIME.

365 is the number of calendar days in a year and is determined by the value of constant TDIME.

The SAP system offers a user exit to determine the monthly proportion of exceptional annual and non-annual payments at the same time. Please refer to the Implementation guide, under Wage Calculation Mexico section ® Tax ® Processing client’s adaptations ® Updating monthly proportion days art. 86 RLISR.

                            b.      Step 2: Next, the “ordinary monthly payment” tax is to be calculated.

The client can calculate their own ordinary monthly payment for this exceptional payment tax calculation. Please refer to the Implementation guide, under Wage Calculation Mexico section ® Tax ® Processing client’s adaptations ® Updating monthly wage calculation for tax.

                            c.      Step 3: The ordinary monthly payment tax plus the exceptional monthly payment proportion is calculated. That is, the ordinary monthly payment + the exceptional monthly payment proportion tax is calculated. This is the tax with remuneration.

                            d.      Step 4: The difference between the taxes is calculated. To do this, the ordinary tax calculation is deducted from the tax with remuneration’s calculation (step 3 less step 2)

                            e.      Step 5: The following factor is obtained:

Tax difference (Step 4)

Monthly proportion (Step 1)

                              f.      Step 6: The following calculation is made:

Net tax = (Factor * taxable income)

100

       2.      Option 2: Another method that can be applied for these exceptional annual payments consists of following steps 1 through to 4 but without the monthly exceptional payment. That is, the exceptional income tax added to the ordinary monthly income is calculated and then the ordinary monthly payment tax is calculated. The difference between both taxes is what the employee pays. To apply this option, wage constant IA86R must be configured correctly. Please refer to the Implementation guide, under section Wage Calculation Mexico ® Tax ® Income tax ® Determining tax variant art.86 RLISR.

       3.      Option 3: Another option would be to directly apply the monthly table. For instance, the complementary annual payment is applied the monthly direct table and the resulting tax is paid by the employee.

       4.      Option 4: Another option consists of applying this annual exceptional payment method quarterly. This method can also be used for several months’ payments.

For example, if there is a quarterly payment, or a sales commission payment forth last three months. If this payment is divided by 365 it would not be correct, given that it may be paid again in the following quarter, or within four, five or six months. What we need to know is how many days this several months’ payment corresponds to. To do this, SAP system has a wage type which allows you to indicate the number of days for which this payment is made as well as making the payment. In the SAP system the wage type is /40B, generated by personnel calculating rule MXI1. The corresponding wage type model is M275.

Using processing class 61 (Implementation guide, section Wage Calculation Mexico ® Tax ® Income tax ® Wage types ® Determining tax exemptions) the number of days for this payment can be identified using this method, but instead of dividing by 365, the division can be 90 days or as appropriate (value = Exceptional payment in days).