New Mexico does not have a state income tax
New Mexico is one of nine states that does not charge residents a state income tax on wages, salaries, or other earned income. This means you will not owe New Mexico state income tax on money you earn from a job, even if you live and work in the state full-time.
However, not having a state income tax does not mean New Mexico has no taxes at all. The state funds schools, roads, and services through other sources, including gross receipts tax (a tax on business sales), property tax, and excise taxes on items like gasoline and alcohol. If you own property or a business in New Mexico, you will still owe taxes — just not on your personal income.
Key Takeaways
- New Mexico residents do not pay state income tax on wages, salaries, or self-employment income.
- You still owe federal income tax to the IRS, even though New Mexico has no state income tax.
- New Mexico funds state services through gross receipts tax, property tax, and excise taxes instead.
- If you move to New Mexico from a state with income tax, you will no longer owe that state's income tax once you establish residency.
Federal income tax still applies in New Mexico
The absence of state income tax does not affect your federal tax obligation. You must still file a federal income tax return with the IRS and pay federal income tax based on your income level, filing status, and deductions. The IRS collects federal tax from residents of all 50 states, including New Mexico.
When you file your federal return, you report your total income the same way you would if you lived in any other state. The only difference is that you will not also file a New Mexico state income tax return, because that form does not exist.
What New Mexico taxes instead of income
New Mexico relies on several other tax sources to fund state operations. The most significant is gross receipts tax, which is a tax on the total revenue a business receives from sales. Unlike a sales tax (which the customer pays), gross receipts tax is paid by the business itself, though it is often passed along to customers in the price of goods and services.
The state also collects property tax on real estate and land. If you own a home or rental property in New Mexico, your county assessor will determine the assessed value, and you will owe annual property tax based on that value. Property tax rates vary by county.
New Mexico also taxes specific items through excise taxes. These include fuel tax (added to gasoline and diesel), alcohol tax, and tobacco tax. These taxes are built into the price you pay at the pump or store.
How this affects people who move to New Mexico
If you relocate to New Mexico from a state that has income tax, you will stop owing that state's income tax once you establish New Mexico residency. Residency is typically established when you move your permanent home to the state, register to vote there, get a New Mexico driver's license, or register your vehicle in the state.
Your previous state may still ask you to file a part-year return for the months you lived there before moving. You would report only the income you earned while you were a resident of that state. Once you are a full-year New Mexico resident, you will not owe that state any income tax.
You should notify your employer of your move so they can stop withholding income tax for your former state. If they continue to withhold after you move, you may be owed a refund when you file your final return in that state.
Self-employment and business income in New Mexico
If you are self-employed or own a business in New Mexico, you do not owe New Mexico state income tax on your business earnings. However, you will still owe federal self-employment tax and federal income tax on that income.
As a business owner in New Mexico, you will owe gross receipts tax instead. This tax is based on your total business revenue, not your profit. The rate varies depending on the type of business you operate, ranging from about 0.75% to 5.75%. You must register with the New Mexico Department of Revenue and file gross receipts tax returns, usually monthly or quarterly.
Retirement income and pensions in New Mexico
New Mexico does not tax retirement income, pensions, or distributions from retirement accounts like IRAs and 401(k)s at the state level. This means retirees who move to New Mexico or who receive pension income while living there will not owe state income tax on those payments.
You will still owe federal income tax on retirement distributions if they are taxable at the federal level. Social Security benefits are generally not taxed by New Mexico, though they remain subject to federal taxation rules depending on your total income.
Frequently Asked Questions
Do I still have to file taxes if I live in New Mexico?
Yes, you must file a federal income tax return with the IRS if your income exceeds the filing threshold for your age and filing status. You do not file a New Mexico state return because the state has no income tax. You may also owe property tax, gross receipts tax, or other state taxes depending on your situation.
Will I get a refund if my employer withheld New Mexico state income tax by mistake?
Yes. Contact your employer's payroll department and ask them to stop the withholding when ready. When you file your federal return, you can request a refund for any New Mexico state income tax that was withheld. Keep your pay stubs as proof of the withholding.
If I work remotely for a company in another state, do I owe that state's income tax?
No. Once you are a New Mexico resident, you owe income tax only to New Mexico (which has none) and to the federal government. Your employer's location does not determine which state taxes you. However, you should update your tax withholding with your employer so they do not continue withholding for the other state.
Are there any New Mexico taxes on investment income or capital gains?
New Mexico does not tax investment income, dividends, interest, or capital gains at the state level. You will owe federal tax on these types of income if applicable, but not New Mexico state tax. This applies whether you earn the income from stocks, bonds, real estate sales, or other investments.