As of January 1, 2020, employers will be required to mention in the payroll receipt, the adjustment to the monthly wage subsidy established by the tax provisions, when the payments they make to their workers are for periods of less than one month, that is, weekly, decennial, fortnightly and biweekly.

Monthly adjustment of the wage subsidy

The current law establishes that taxpayers who receive income from wages will enjoy a wage subsidy that will be applied against the Income Tax (ISR) owed every month.

The wage subsidy will be calculated by applying to the income from wages used as the basis for calculating the income tax of the corresponding month, the progressive table of the monthly wage subsidy.

When the wage payments are for periods of less than one month, the amount of the wage subsidy belonging to the worker for all the payments made in the month, may not exceed the amount established in the monthly subsidy table, because of that, employers must adjust those workers.

Until 2019, this adjustment was not mentioned in the payroll receipt; in addition, many of the employers carry out an annual adjustment and not a monthly adjustment in the payroll of their workers. Now, with the amendment to the payroll receipt, employers will not be able to omit this obligation.

Aspects to consider

There is no problem in those cases where the workers earn their wage on a monthly basis, since the wage subsidy table is clear and simple; however, the challenge comes when a worker receives its wage on a weekly or biweekly basis, since the Income Tax Law establishes a mechanism on which all the columns of the table must be divided by 30.4 and subsequently, multiplied by the number of days of the period, establishing that the amount delivered as the wage subsidy may not exceed the amount established in the monthly table.

The wage subsidy table has not been updated since 2010, which results in many workers being outside of the ranges of the table, since their salary is higher.

Unfortunately, this new provision affects low-wage workers, which will be reflected in a lower income for them.

If the provisions regarding payroll receipts are not dully complied within the corresponding fields and the correct calculation of the Income Tax for the wage received by the worker, the payroll paid to said employee could be a non-deductible expense.

Companies must seek ways to comply with this new obligation regarding payroll stamping, including reviewing the amounts for the wage subsidy given to their workers since January 2020 and making the respective adjustments, so that penalties could be avoided.

We will hope that the tax authorities grant an extension period so that the employers can comply with this new obligation.

We remain at your disposition for any questions or clarification in this regard.