Introduction
In at least four Mexican states, local legislatures have approved increasing the Payroll Tax (ISN) to 4% for 2026 as part of their fiscal package for the upcoming year. The states involved are Baja California Sur, Chihuahua, Colima, and Yucatán. In Nuevo León, the local congress rejected the proposal from Governor Samuel García of the Movement of Citizens (MC) to raise the ISN from 3% to 4%. The governance in these states is led by Morena, except for Chihuahua, which is governed by the National Action Party (PAN).
States that Approved the Increase
Chihuahua
The Chihuahua state congress approved raising the ISN from 3% to 4% within the 2026 budget framework, despite opposition from local businesses.
Baja California Sur
The local congress in Baja California Sur approved a reform to the local Hacienda law the previous week, raising the ISN from 2.5% to 3% on total payments made to employees, whether in cash or in kind, starting in 2026. The local business sector opposed this increase.
Since 2006, the ISN rate in Baja California Sur has been 2.5%, which is now being raised to align with the national average. The local business sector also opposed this increase.
Yucatán
The Yucatan state congress approved raising the ISN from 3% to 3.75% within the 2026 fiscal package. Governor Joaquín Díaz Mena’s administration justified that the additional resources from the ISN increase would be used to subsidize the local public transportation system, Va y Ven.
Understanding the ISN
The ISN is a local tax levied by the 32 federal entities in Mexico, with rates ranging from a minimum of 2% to a maximum of 4%. Each state sets its tax code and regulations for this tax.
Employers are responsible for paying the ISN, not employees. It is charged on expenditures related to personal subordinated labor remuneration, such as salaries, wages, bonuses, commissions, and holiday or Sunday premiums.
Warnings of Risks
The Confederation of National Chambers of Commerce (COPARMEX) recently warned that increasing the ISN in several states “implies a significant burden on formal employment.”
“This tax directly impacts formal hiring and a company’s ability to sustain its workforce,” COPARMEX stated in a press release.
Key Questions and Answers
- Which states have approved the increase? Baja California Sur, Chihuahua, Colima, and Yucatán have approved raising the ISN to 4% for 2026.
- What is the ISN? The ISN is a local tax levied by Mexico’s 32 federal entities, with rates between 2% and 4%. It is paid by employers based on labor-related expenditures.
- What concerns have been raised about the ISN increase? COPARMEX has warned that raising the ISN in several states will significantly impact formal employment by increasing the burden on businesses and affecting their capacity to maintain their workforce.
