Taxes In New Mexico
New Mexico is a tax haven because it offers incentives and favorable tax rates to individuals and companies. In addition to these incentives, the state has relatively low-income tax rates, inexpensive property taxes, no inheritance tax, and one of the lowest gas taxes in the country.
One of the unique aspects of New Mexico’s tax code is the use of a gross receipts tax (GRT), which is similar to a sales tax but has some crucial differences.
New Mexico’s tax system is relatively easy to navigate, and many of the income figures that you use when preparing your documents are the same for federal taxes as they are for New Mexico state taxes. Therefore, you only have to perform the calculations once for both state and federal returns.
Furthermore, most people can file tax documents online in New Mexico.
That said, you do need to understand the process and required documents, and you need to file income tax returns annually in New Mexico if you meet minimum requirements. Failure to file or to accurately report income may result in fines, interest payments on back taxes, withholding of tax refunds, or, in extreme cases, criminal prosecution and jail sentences.
In many cases, filing accurate tax returns can benefit you because you may qualify for refunds, credits, or deductions.
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New Mexico Income Tax
Like most other states, residents in New Mexico pay a state income tax. Everyone who has income from New Mexico and is required to file a federal tax return must also submit a state return.
The amount of income tax you have to pay in New Mexico depends on your taxable income and also your filing status.
New Mexico has four tax brackets based on filing status and income, and the rate is different for each bracket.
|Tax Rate||Single filer||Married, filing jointly||Married, filing separately||Head of household|
|1.7%||$0 to $5,500||$0 to $8,000||$0 to $4,000||$0 to $8,000|
|3.2%||$5,501 to $11,000||$8,001 to $16,000||$4,001 to $8,000||$8,001 to $16,000|
|4.7%||$11,001 to $16,000||$16,001 to $24,000||$8,001 to $12,000||$16,001 to $24,000|
|4.9%||$16,001 and up||$24,001 and up||$12,001 and up||$24,001 and up|
The current standard deduction is $12,200 for single filers and $24,400 for married couples filing jointly as well as head of household filers.
New Mexico also offers tax exemptions or rebates to middle-class and low-income filers. For these perks, your federal adjusted gross income needs to be below the exemption threshold. The threshold for middle-class exemptions is $55,000 for married joint filers and heads of household and $36,667 for individual filers. The low-income tax rebate is for those who earn $22,000 or less per year.
New Mexico also offers state income tax exemptions for active-duty military personnel. Military members in New Mexico need to file a regular income tax form, which is PIT-1. However, you also file PIT-ADJ to claim all your military pay, which is exempt from state taxes. Any other sources of income may not be exempt.
New Mexico Sales Tax
New Mexico does not have a traditional sales tax. Instead, it has a gross receipts tax (GRT). The state levies this tax on the sellers of goods or consumer services. Officially, sellers or service providers pay GRT, but they pass the cost on to consumers. GRT is based on total revenue rather than total sales.
The rate of this tax varies depending on where you are in the state. Currently, GRT rates range from 5.125% to 8.6875%. Counties, cities, and towns have additional GRT rates that they add on to the base 5% statewide rate. Each business pays the total amount of the GRT to the state, and the state then pays any percentage owed to the company’s county or town.
This tax system affects businesses, but consumers may also notice it sometimes. For example, since GRT focuses on revenue rather than the sale of products, consumers may see a tax on some services, such as repairs, on which they would not have to pay sales tax in another state.
New Mexico Property Tax
New Mexico imposes a tax on all real property in the state. All property gets taxed at one-third of its appraised value. In each case, a county assessor performs the appraisal. Tax rates can vary throughout the state because they are administered at the county level and include levies to pay for local improvements, public schools, and other public works.
County assessors mail notices of valuations each April to let homeowners know the total value of their home and the taxable value. Because the taxable value is only one-third of the assessed value, New Mexico has one of the lowest effective property tax rates in the country.
Also, the assessed value cannot increase by more than 3% per year unless a property gets sold or renovated. Therefore, there is a cap on property tax increases from year to year.
Every real property owner needs to pay property taxes, including owners of manufactured or prefab homes. However, you can also apply for various credits and exemptions. For example, property owners who offer affordable rental units can get a tax credit, as can real estate owners who have sustainable buildings or who make renewable energy improvements.
New Mexico Estate Tax
An estate tax is a tax levied on the value of an individual’s estate after they die. New Mexico does not have an estate tax. It got phased out in 2005. If you need to file a federal Form 706 with the IRS, then you also need to submit a New Mexico Estate Tax form. However, the state will issue you a notice that says no taxes are due.
New Mexico does not have an inheritance tax either, but you do have to pay income tax on any earnings from an estate. However, this tax is for income generated by the estate after you inherited it. It is not on the inheritance itself.
Filing Taxes In New Mexico
You need to file an income tax return in New Mexico if you meet any of the following criteria:
- You need to file a federal income tax return.
- You want to claim a refund on taxes withheld from a paycheck.
- You want to claim rebates or credits that New Mexico offers to taxpayers.
Nonresidents who earn income in New Mexico need to file income tax returns in the state as well.
New Mexico has a filing deadline of April 15. However, the state wants to encourage people to file electronically, so the deadline is April 30 for those who use the state’s online system. You can file for a six-month extension if needed, and the state will automatically grant you an extension if you apply for a federal extension.
You have two options for filing income taxes. You can use a paper form or file electronically. In addition to a deadline that is 15 days later, electronic filers enjoy a faster turnaround. According to the state, refunds from electronic returns can come in as little as two weeks, which is much quicker than paper returns.
The most common income tax return form is PIT-1. You can file additional paperwork depending on your tax status, adjustments, sources of income and investments, and other variables.
You can find printable forms on the New Mexico Department of Taxation and Revenue site. You can also use the state’s Taxpayer Access Point (TAP) to file online. Additionally, the Department offers resources and access to a variety of online services.
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This post was updated January 29, 2020. It was originally published January 29, 2020.