New Mexico · retirees
New Mexico for retirees: the Social Security line, pensions taxed in full, and the $8,000 that few can claim
New Mexico exempts Social Security only below an income line and taxes pensions, IRAs, 401(k)s and Roth conversions in full. What the $100,000 and $150,000 thresholds do, why a dollar over them costs thousands, the $30,000 military exemption, the $8,000 age-65 exemption and its low income limits, the medical breaks at 65, why the federal senior deduction does nothing here, and the property-tax relief that lives at the county assessor.
By Charles Trautman, EA, editor
Need to Know Tax · written from New Mexico Taxation and Revenue Department sources, November 3, 2026; updated November 12, 2026 after the election · not yet reviewed by a New Mexico practitioner
New Mexico taxes a retiree’s income the way it taxes a worker’s. A pension, a 401(k) or 403(b) distribution, a traditional IRA withdrawal, a Roth conversion, a government pension: all of it is in federal adjusted gross income, Form PIT-1 starts from federal AGI, and no line takes retirement income back out. The exceptions are specific. Federally taxable Social Security comes off in full on Schedule PIT-ADJ, but only if federal AGI is $100,000 or less on a single return or $150,000 or less on a joint, head-of-household or surviving-spouse return. Up to $30,000 of military retirement pay comes off for the retiree or a surviving spouse. A taxpayer 65 or older gets an exemption of up to $8,000, but it is gone at $28,500 of AGI single or $51,000 joint. And a retiree whose unreimbursed medical bills pass $28,000 in a year gets a $3,000 exemption and a $2,800 refundable credit. Everything else is taxed at the six brackets from 1.5% to 5.9%, after the federal standard deduction, which New Mexico borrows.
The Social Security line is the number that shapes a New Mexico retirement. It is all or nothing, it is not indexed, and because it tests federal AGI, every other decision a retiree makes, how much to draw from an IRA, whether to convert to a Roth, when to sell appreciated stock, can switch the exemption off. A couple at $150,000 of AGI pays no New Mexico tax on $40,000 of taxable Social Security. A couple at $150,001 pays tax on all of it, about $1,900 at their rates.
Social Security: exempt below the line
The federal return decides how much of a Social Security benefit is taxable, up to 85%, and that amount goes into AGI. New Mexico then exempts the whole federally taxable portion on Schedule PIT-ADJ when federal AGI is at or under $100,000 single, $150,000 married filing jointly, head of household or surviving spouse, or $75,000 married filing separately. Railroad Retirement Tier 1 benefits get the same treatment. The test is federal AGI including the taxable Social Security itself, before any New Mexico deduction or exemption. Over the line, the exemption is zero; there is no phase-out.
The thresholds were set in 2022 and have not moved. A bill in the 2026 session would have phased in a partial exemption for retirees above the lines, starting at 20% for 2026; it did not pass, so the cliff stands for the 2026 return. Retirees near the line should treat $100,000 and $150,000 as hard ceilings when deciding how much to withdraw in a year.
Pensions, IRAs and 401(k)s: taxed in full
There is no general retirement income exclusion, no pension subtraction and no special treatment for government or out-of-state pensions. Whatever is taxable federally on lines 4b and 5b of Form 1040 is New Mexico income, taxed at the regular brackets. A required minimum distribution, an early withdrawal, an inherited IRA distribution and a lump-sum rollover that missed the 60-day window are all treated the same way. Federal law bars the state where a pension was earned from taxing it once the retiree lives elsewhere, so a retiree who moves to New Mexico brings the pension into New Mexico’s tax base on arrival.
The one carve-out is for the military. Up to $30,000 of armed forces retirement pay is exempt for the retiree and, since the 2024 tax package, for a surviving spouse receiving it. The exemption was due to expire after 2026 under the law that created it; the 2024 package made it permanent. Two 2026 bills to remove the $30,000 cap died in committee, so for 2026 a retiree with $45,000 of military retired pay exempts $30,000 and pays tax on $15,000.
The $8,000 exemption at 65
A taxpayer who is 65 or older or blind claims an exemption on PIT-1 line 15 of up to $8,000 of any kind of income. It falls by $1,000 for each step of AGI and reaches zero quickly.
| Exemption | Single | Joint, head of household, surviving spouse | Married filing separately |
|---|---|---|---|
| $8,000 | up to $18,000 | up to $30,000 | up to $15,000 |
| $7,000 down to $2,000 | $18,000 – $27,000, in $1,500 steps (verify) | $30,000 – $48,000, in $3,000 steps (verify) | $15,000 – $24,000, in $1,500 steps (verify) |
| $1,000 | $27,000 – $28,500 | $48,000 – $51,000 | $24,000 – $25,500 |
| $0 | over $28,500 | over $51,000 | over $25,500 |
The test is federal AGI, which includes taxable Social Security, the full IRA withdrawal and any Roth conversion. Each spouse who qualifies claims the exemption, but the AGI test is the household’s. The figures are not indexed.
The federal government’s $6,000 senior deduction for 2025 through 2028 does not reach the New Mexico return. It is taken on Form 1040 after adjusted gross income and outside the standard deduction on line 12, and PIT-1 borrows only line 12. The additional standard deduction for age, $1,650 per married person and $2,050 for a single filer in 2026, is part of line 12 and does flow through. So a married couple both 65 or older deducts $35,500 on PIT-1 for 2026, the same as federally before the senior deduction.
Medical bills at 65
New Mexico has no medical deduction of its own; the Schedule A medical figure is inside the borrowed itemized deduction for those who itemize. In its place are two breaks tied to age and to a single threshold. A taxpayer 65 or older whose unreimbursed medical care expenses for self, spouse and dependents exceed $28,000 in the year claims a $3,000 exemption on Schedule PIT-ADJ. The same taxpayer, at $28,000 or more of such expenses, claims a refundable $2,800 credit ($1,400 married filing separately) on Schedule PIT-RC (verify 2026 amount). Refundable means it is paid even if no tax is due. A year of nursing-home or assisted-living costs typically clears the threshold, and the credit is the larger of the two by far.
Roth conversions: taxed, and a threat to the Social Security exemption
A Roth conversion is reported on federal line 4b and is New Mexico income in full. At the regular brackets a $50,000 conversion by a couple already in the 4.7% bracket costs about $2,350 of New Mexico tax, on top of the federal tax. That is the ordinary cost. The New Mexico-specific cost is that the conversion raises AGI, and AGI is what the Social Security exemption and the $8,000 age exemption test. A conversion that carries a couple from $140,000 to $160,000 of AGI makes every dollar of their taxable Social Security New Mexico income, which can add more tax than the conversion itself. Size conversions to stop short of $150,000 joint or $100,000 single, and remember that the federal side has its own thresholds: more Social Security taxable federally, Medicare premiums two years later through IRMAA, and the 2026 phase-out of the federal senior deduction.
Worked example: a retired couple, and what a Roth conversion does
Both 68, married filing jointly, Albuquerque. Social Security of $36,000, of which $30,600 is taxable federally. A pension of $24,000, IRA withdrawals of $20,000, and $8,000 of interest and dividends. They take the federal standard deduction with the age additions.
| Federal AGI | $82,600 |
| PIT-ADJ: taxable Social Security exempt (AGI under $150,000) | −$30,600 |
| Federal standard deduction with two age additions, line 12 | −$35,500 |
| Age-65 exemption, line 15: AGI above $51,000 | $0 |
| New Mexico taxable income | $16,500 |
| Tax: 1.5% of $8,000 + 3.2% of $8,500 | $392 |
| New Mexico tax | $392 |
Now suppose they convert part of the IRA to a Roth in the same year. Two sizes of conversion, three thousand dollars apart:
| $67,000 conversion | $70,000 conversion | |
|---|---|---|
| Federal AGI | $149,600 | $152,600 |
| Social Security exemption | −$30,600 | $0 |
| Line 12 deduction | −$35,500 | −$35,500 |
| New Mexico taxable income | $83,500 | $117,100 |
| New Mexico tax | $3,314 | $4,927 |
| Tax on the conversion itself, over the $392 base | $2,922 | $4,535 |
The last $3,000 of conversion cost $1,613 of New Mexico tax, because it carried AGI past $150,000 and put $30,600 of Social Security back into income. The $67,000 conversion cost 4.4% in New Mexico tax; the extra $3,000 cost 54%.
Property-tax relief
New Mexico’s help for seniors on the property tax bill comes mostly from the county assessor, not the income tax return. Taxable value here is one-third of assessed value, so a $2,000 exemption from taxable value is worth $6,000 of market value.
| Program | What it does | Who, and where to apply |
|---|---|---|
| Valuation freeze, 65 or older or disabled | Freezes the home’s value at the year of application; permanent after three consecutive approved years | Modified gross income at or under the annual limit, $44,200 for 2025, 2026 to come; county assessor, generally by the end of February |
| 3% cap on residential value increases | Taxable value of an owner-occupied home cannot rise more than 3% a year while ownership is unchanged; resets to market value on sale | Automatic |
| Head-of-family exemption | $2,000 off taxable value of the principal residence | One per household; county assessor |
| Veteran exemption | $10,000 off taxable value, indexed since 2025; 100% disabled veterans fully exempt, partial disability exempt in proportion | County assessor, with Veterans’ Services certification |
| Property Tax Rebate, 65 or older (Schedule PIT-RC) | Up to $250 ($125 separate) of property tax above a table amount; the Department says renters qualify too, using a share of rent as the tax (verify the percentage) | Modified gross income $16,000 or less; on the PIT-1 |
| Additional Low Income Property Tax Rebate (Schedule PIT-RC) | 35% to 75% of property tax, up to $350 | Residents of Los Alamos, Santa Fe and Doña Ana counties (verify list), modified gross income up to $24,000, no age test |
The valuation freeze income test counts Social Security and retirement income in full, even where the income tax exempts them. A retiree who sells and buys within New Mexico loses the 3% cap history on the old house; the new house is valued at market and starts over.
Withholding and estimated payments for retirees
Because pensions and IRA withdrawals are taxed in full, a New Mexico retiree needs state withholding or estimated payments where a worker has a W-2. Payers withhold New Mexico tax on request; many retirees never ask and meet a bill in April. Anyone who expects to owe $1,000 or more after withholding must pay in quarterly, on Form PIT-ES or through the Department’s online system, by April 15, June 15, September 15 and January 15, under a safe harbor of 90% of this year’s tax or 100% of last year’s. A retiree who does a Roth conversion late in the year can make a single catch-up estimate by January 15 (verify penalty computation by quarter).
Behind the scenes: the 2022 Social Security law
Until 2022 New Mexico taxed Social Security the way the federal government does, with only the $8,000 age exemption and its low limits as relief. House Bill 163 of 2022 exempted benefits below $100,000 single and $150,000 joint, numbers chosen to cover most retirees while leaving higher incomes alone. The sponsors chose a cliff rather than a phase-out, which is why the line matters so much. The same bill created the $30,000 military retirement exemption with a sunset after 2026, and the 2024 tax package later made that permanent and extended it to surviving spouses. Since then the pressure has been to soften the Social Security cliff; the 2026 attempt failed, and none of the thresholds is indexed, so inflation moves more retirees over the line each year.
What to bring
- Every 1099-R and the SSA-1099 or RRB-1099 for each spouse, with the federal taxable amounts
- Form 1099-R for any Roth conversion, and the Form 5498 showing the Roth deposit
- Dates of birth for both spouses; 65 unlocks the line 15 exemption and the medical and property tax rebates
- A military retiree’s 1099-R from DFAS, or a surviving spouse’s SBP statement, for the $30,000 exemption
- Medical bills, premiums and long-term-care costs for the year, if they might pass $28,000
- Brokerage 1099s, with U.S. Treasury interest and out-of-state municipal interest broken out
- The property tax bill, and any freeze or exemption paperwork from the county assessor
- New Mexico estimated payments made, with dates
Questions people ask
Does New Mexico tax Social Security?
Only above an income line. If federal AGI is $100,000 or less single or $150,000 or less joint, the federally taxable portion is exempt in full. One dollar over, and all of it is taxed. There is nothing in between.
Does New Mexico tax my pension or my IRA withdrawals?
Yes, in full, at the regular brackets, wherever the pension was earned. The only retirement exemption is $30,000 of military retired pay.
Does the federal $6,000 senior deduction cut my New Mexico tax?
No. It is taken after AGI and outside the standard deduction, and New Mexico borrows only the standard deduction. The federal additional standard deduction for age does flow through. New Mexico’s own age break is the $8,000 exemption, which ends at $28,500 of AGI single or $51,000 joint.
Does New Mexico tax a Roth conversion?
Yes, as ordinary income. It also raises AGI, which can switch off the Social Security exemption and the $8,000 exemption. Size the conversion to stay under $150,000 joint or $100,000 single if you have Social Security.
I inherited my mother’s IRA. Is the distribution taxed?
Yes, like any IRA distribution. It also counts toward the Social Security threshold and the age-exemption limits in the year you take it. Spreading inherited-IRA withdrawals across the ten-year window can keep a retiree under the line.
I am 70, still working, and taking required minimum distributions. What is taxed?
Wages, the distributions, interest, dividends and gains, all at the regular rates. Your Social Security is exempt only if AGI, including the wages and the RMDs, is at or under $100,000 single or $150,000 joint.
Know your AGI before December, not April
In New Mexico the Social Security exemption, the $8,000 age exemption and the property-tax freeze all turn on income you can still adjust before the year ends; the pension and IRA tax you cannot avoid, so have it withheld.
Written by Charles Trautman, EA, editor · Need to Know Tax, Lone Tree, Colorado
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