Mexico's Payroll Tax Is Rising, One State at a Time: The 2025–2026 ISN Increases

A company with a warehouse in one Mexican state, a sales office in another, and stores in a third pays the Impuesto Sobre Nóminas, the state payroll tax, separately in each one, at whatever rate that state has set. The rates are not the same across states, and they do not change on a shared national date. Each state adjusts its own rate in its own year-end fiscal package, so a company operating across several states can walk into January owing a different rate in two of them than it did in December, often without any signal that something moved. That is the core difficulty with ISN, and the 2025 and 2026 increases are a clear illustration of that difficulty. Let me explain what this tax is, what changed across those two years, and why ISN is easy to get quietly wrong when a company operates across several Mexican states.

What ISN actually is

The Impuesto Sobre Nóminas is a state tax on the total remuneration an employer pays for personal work. Two features make it different from almost everything else on a Mexican payroll. First, it is the employer's own cost: it is calculated on gross payroll and paid by the company, never deducted from the worker's pay. Second, there is no national rate. Each of Mexico's 32 states sets its own ISN rate, its own base, its own exemptions, and its own filing rules, and you remit it monthly to that state's finance secretariat. So a single company with people in three states is running three different payroll-tax regimes at once, and each one can change without reference to the others.

ISN is not a new tax. Mexican states have levied it for decades under their own state finance laws (leyes de hacienda), drawing on the constitutional power states have to tax payroll, and for years the rates sat in a band of roughly 2 to 3 percent. What is changing now is an upward convergence, with several states pushing toward or past the 3 percent mark, each in its own annual fiscal package and on its own timeline.

What changed in 2025 and 2026

Three states make the pattern concrete.

Guerrero went first. As part of its 2025 fiscal package, it reformed Article 44 of its Ley 419 de Hacienda and raised ISN from 2 percent to 3 percent, effective January 1, 2025. The state was explicit about why: Guerrero had been among the three states with the lowest ISN rates, and 3 percent brings the state in line with the national average.

Morelos followed a year later. Decree 997 reformed Article 58 BIS-4 of its finance law and moved ISN from 2.5 percent to 3.0 percent, effective January 1, 2026. Worth noting how close this came to being much larger: the original executive proposal was 4.25 percent, and the legislature's finance committee cut it back to 3.0 during the process. That is a useful reminder that the proposed number and the final number are often not the same, which is another reason you cannot rely on the headline you read in November.

Chihuahua is the one with a twist. Its December 2025 decree temporarily raised ISN from the permanent 3 percent to 4 percent for fiscal years 2026 and 2027 only, effective January 1, 2026, with the rate set to revert to 3 percent on January 1, 2028 unless the legislature extends it. That is a 33 percent jump in the payroll-tax burden for two years, and then, in principle, a step back down. Chihuahua also kept a local quirk: certain long-standing extraordinary contributions are still calculated on the 3 percent base, not the temporary 4 percent, so even within one state there are two rates doing two jobs.

What the increases cost across multiple states

The 2025–2026 increases show what this looks like in money. Say a company pays 2,000,000 pesos of taxable payroll in each of the three states. In Guerrero, ISN went from 40,000 pesos a month (2 percent) to 60,000 (3 percent). In Morelos, from 50,000 (2.5 percent) to 60,000 (3 percent). In Chihuahua, from 60,000 (3 percent) to 80,000 (4 percent) for 2026 and 2027, and then back to 60,000 in 2028. That is an extra 50,000 pesos a month across the three states, and the Chihuahua increase is temporary: the rate reverts in 2028, which the employer has to remember to apply.

Now multiply that across many states, and the difficulty becomes clear. No single calculation is hard, because ISN is just a percentage of payroll. The problem is that the correct percentage differs in every state, changes on each state's own fiscal calendar rather than on a shared national date, is sometimes temporary with an expiry to track, and can end up different from the rate that was first proposed. A rate stored in a spreadsheet is only as current as the last time someone updated that spreadsheet, and ISN offers dozens of separate chances to miss a change.

The cost of missing a change runs both ways. Under-apply a rate that went up, and the employer has underpaid a state tax, which comes back as an assessment with surcharges. Keep applying a temporary rate after expiry, as will happen in Chihuahua in 2028 if nobody resets the rate, and the employer over-pays, leaving the company's money sitting with the state. Neither error shows up on a payslip. Both show up eventually.

Managing ISN across states

ISN is simple to calculate in any one state and genuinely hard to manage across several, because it amounts to 32 separate rates on 32 separate fiscal calendars, with temporary increases, rates that get cut during the legislative process, and local quirks layered on top. Most states are moving toward the 3 percent mark, but a general trend does not tell you the exact rate to apply to a given workplace in a given month, which is the only number that matters for the pay run.

This is the kind of cross-state tracking Flux is built to handle. We keep each state's ISN rate, its effective dates, and its expiry dates current, so the right rate applies to each workplace automatically, including the day a temporary increase like Chihuahua's is supposed to roll back. The payroll manager running payroll across multiple states in Mexico should not have to remember which state changed its rate in which December. That is our job, not theirs.