How New Mexico income tax works: federal AGI, the borrowed deduction, six brackets to 5.9%

New Mexico’s return is built on two borrowed numbers. Form PIT-1 starts from federal adjusted gross income, and a few lines later it subtracts the federal standard or itemized deduction exactly as it appears on line 12 of Form 1040. Between and after those two numbers the state does its own work: it adds back the state and local income tax an itemizer deducted on Schedule A, allows $4,000 for every dependent after the first, phases out a $2,500 exemption and an $8,000 age-65 exemption at low incomes, and subtracts a short list of items on Schedule PIT-ADJ, Social Security under an income line and military retirement pay among them. What is left is New Mexico taxable income, taxed at six rates from 1.5% to 5.9%. No city or county in New Mexico levies an income tax. The refundable credits for working families, children and low incomes live on Schedule PIT-RC and are paid whether or not any tax is owed.

Because the deduction is borrowed, the permanent larger federal standard deduction cuts New Mexico tax too. Because the starting point is AGI, the federal deductions that sit below AGI but outside line 12 never arrive: a tipped worker who owes no federal tax on $8,000 of tips still owes New Mexico tax on every dollar.

Who files

A New Mexico resident who files a federal return files a PIT-1 reporting all income, wherever earned, and claims a credit on line 20 for income tax paid to another state on income taxed by both. The Department also wants a return from anyone who wants New Mexico withholding back or a rebate or credit paid. A part-year resident and a nonresident with New Mexico-source income file the same PIT-1 with Schedule PIT-B, which works out the New Mexico share. A resident is anyone domiciled here or physically present for 185 days or more in the year, counting only full days. Married couples use the federal filing status. The residency rules and the move-year return are in Moving to New Mexico.

Where it starts: federal AGI

The first income line of PIT-1 is federal adjusted gross income from Form 1040. AGI is income after the Schedule 1 adjustments, so an IRA contribution, a health savings account deposit, student loan interest, self-employed health insurance and half of self-employment tax all flow through and cut New Mexico tax. The items the federal return handles after AGI do not flow through unless they are inside line 12 of the 1040. The standard deduction and itemized deductions are. The qualified business income deduction, the tips and overtime deductions, the senior deduction, the charitable deduction for non-itemizers and the new Trump accounts are not. One exception the Department has named: the 2025 car-loan interest deduction flows through under New Mexico’s definition of base income (verify), and where it goes on the 2026 PIT-1 is to come.

New Mexico conforms to the Internal Revenue Code as it stands, so every federal change to AGI and to the standard or itemized deduction reaches the state return automatically. The Taxation and Revenue Department’s own phrase is that federal changes “automatically flow through.” The 2026 federal limitation on itemized deductions for top-bracket taxpayers applies here for the same reason.

The additions

New Mexico adds a short list of items back on PIT-1 and Schedule PIT-ADJ. For most households there is one that comes up, and only for itemizers.

State and local income tax, line 10. An itemizer who deducted state and local income tax (or sales tax in its place) on Schedule A line 5a adds it back here. The add-back is limited to the amount by which itemized deductions exceeded the standard deduction, and where the federal SALT cap trimmed the Schedule A figure the add-back is trimmed in proportion. Property taxes are not added back. The effect is that the higher $40,000 federal SALT cap enacted in 2025 raises the New Mexico add-back rather than lowering New Mexico tax, which is why the Department counted it as revenue rather than a cost.

Other states’ municipal bond interest. Interest on bonds issued by other states and their local governments is federally tax-exempt but New Mexico taxes it. A brokerage 1099 that lumps all municipal interest together has to be split.

529 recapture. A non-qualified withdrawal from a New Mexico 529 plan, and any amount previously deducted that is later withdrawn for something other than education, is added back on PIT-ADJ.

The subtractions

Schedule PIT-ADJ is also where New Mexico gives money back. These are the lines that matter to most households.

The Social Security exemption is all or nothing. A dollar of AGI over the line and the whole federally taxable portion is New Mexico income. The thresholds are not indexed.

Two things are missing from that list on purpose. There is no general pension or IRA exclusion: a pension, a 401(k) withdrawal, an IRA distribution and a Roth conversion are all taxed in full once they are in federal AGI. And there is no preferential rate for capital gains; since tax year 2025 the old 40% deduction survives only for the sale of a New Mexico business. Both are covered in New Mexico for retirees.

The deduction

Line 12 of PIT-1 is the federal standard deduction or federal itemized deductions, copied from line 12 of Form 1040. New Mexico publishes no figure of its own and takes the federal choice as made: a taxpayer who took the standard deduction federally takes it here, and one who itemized federally itemizes here, less the line 10 add-back. For 2026 a non-itemizer deducts $16,100 single or married filing separately, $24,150 head of household and $32,200 married filing jointly, plus the federal additional standard deduction for age 65 or blindness, which is part of line 12 and so flows through.

The exemptions

New Mexico has no personal exemption. Three lines do its job, and all three use fixed dollar figures that have not been indexed.

The dependent deduction, line 13. $4,000 for each dependent except one, for joint and head-of-household filers who are not themselves someone else’s dependent. A couple with one child gets nothing here; with two children, $4,000; with three, $8,000. Single filers do not qualify.

The low- and middle-income exemption, line 14. Up to $2,500 for each exemption the household would have claimed federally, the taxpayer, spouse and each dependent, phased out as AGI rises. A single filer gets the full amount at AGI of $20,000 or less and nothing at $36,667; a joint, head-of-household or surviving-spouse filer gets the full amount at $30,000 and nothing at $55,000; married filing separately, $15,000 and $27,500. Between the two points the exemption falls by a fixed amount per dollar of AGI (verify the phase-out rate; the instructions carry a table).

The age-65-or-blind exemption, line 15. Up to $8,000 of any income for a taxpayer who is 65 or older or blind, falling by $1,000 steps as AGI rises: the full $8,000 at AGI up to $18,000 single or $30,000 joint, $1,000 at $27,000 to $28,500 single or $48,000 to $51,000 joint, and nothing above $28,500 single or $51,000 joint. It is New Mexico’s answer to the federal senior deduction, and it reaches far fewer people.

The rates

AGI, plus additions, minus the deduction and the exemptions and the PIT-ADJ subtractions, is New Mexico taxable income. The six brackets below were set by the 2024 tax package (HB 252) for tax year 2025 and are unchanged for 2026. They are not indexed, so inflation moves income up through them each year without a vote.

A single filer with $50,000 of taxable income pays $82.50 on the first $5,500, $352 on the next $11,000, $731 on the next $17,000 and $775.50 on the last $16,500: $1,941, an effective rate of 3.9%. Head-of-household filers use the joint brackets, which is unusual and generous.

Wages, interest, dividends, capital gains above the $2,500 deduction, rent, unemployment and gambling winnings are all taxed at these rates.

The credits

New Mexico’s credits divide by schedule. The refundable ones for households are on Schedule PIT-RC; the credit for tax paid to another state is on PIT-1 itself; business credits are on Schedule PIT-CR.

The two to know are the Working Families Tax Credit, which is simply a quarter of the federal EITC and reaches people the federal credit leaves out, and the Child Income Tax Credit, which pays something for every child on every return, even at high incomes. Both are in Credits and breaks for New Mexico families.

Withholding and estimated payments

New Mexico has no withholding certificate of its own. Employers use the federal Form W-4 and the state tables in the Department’s publication FYI-104. An employee who wants more New Mexico tax withheld asks the employer for an additional flat amount per paycheck. Pension and IRA payers withhold New Mexico tax on request (verify form), and since retirement income is taxed in full here, a retiree who does not ask is often underwithheld.

Anyone who expects to owe $1,000 or more after withholding must make estimated payments, on Form PIT-ES or through the Department’s online system, by April 15, June 15, September 15 and January 15. The safe harbor is the smaller of 90% of this year’s tax or 100% of last year’s; the Department’s estimated-payments page names no 110% rule for higher incomes. The penalty is figured on Form RPD-41272. The usual people caught out are the self-employed, landlords, retirees with large IRA withdrawals and anyone with a big capital gain.

How to file

The return is due April 15, 2027, for paper and electronic filers alike; the extra time that electronic filers used to get was repealed in 2025. New Mexico follows the IRS rules on extensions: with a federal extension nothing more is filed; without one, file Form RPD-41096 by April 15. An extension does not extend the time to pay. Interest runs from April 15, and the late-payment penalty is 2% a month up to 20% unless 90% of the tax was paid by the original date (verify the 90% rule). The Department’s Taxpayer Access Point, TAP, files the PIT-1 free, takes e-check payments at no charge, shows refund status without an account and sets up payment plans; a first-year filer cannot use it for the first return and files through software or on paper. An amended return is Form PIT-X. The dates and forms are gathered in New Mexico calendar and forms.

What trips people up

• Social Security left exempt on a return with AGI of $100,001 single or $150,001 joint. The exemption switches off entirely.
• The federal tips, overtime or senior deduction expected to cut New Mexico tax. None of them reach PIT-1.
• The line 10 add-back skipped by an itemizer, or figured on the full Schedule A amount instead of the limited amount.
• Dependents counted on line 13 without dropping the first one, or claimed by a single filer.
• A contribution to The Education Plan or Scholar’s Edge nobody mentioned, because the federal return did not ask.
• The old 40% capital gain deduction applied to stock sales. Since 2025 it is $2,500 unless a New Mexico business was sold.
• Gross receipts tax owed by a self-employed person who thought New Mexico had no sales tax. It has no sales tax; it has a gross receipts tax that reaches services.
• The extension treated as an extension to pay.