What’s new in New Mexico for 2026: the federal changes that arrive, and the ones that don’t

New Mexico’s personal income tax starts from federal adjusted gross income and then borrows the federal standard or itemized deduction from Form 1040 line 12. Everything Congress did in 2025 is sorted by that one design fact. Changes that move AGI or the line 12 deduction reach Form PIT-1 automatically: the permanent larger standard deduction, $16,100 single and $32,200 joint for 2026, the new car-loan interest deduction, and 100% bonus depreciation for a sole proprietor or landlord. Changes that sit below line 12 on the federal return never arrive: the deductions for tips, overtime and the $6,000 senior deduction are invisible to New Mexico, and the income they shelter federally is taxed here in full. The state’s six brackets, 1.5% to 5.9%, are the same as 2025, and nothing the legislature passed in 2026 touches the 2026 return.

The Taxation and Revenue Department laid this out for the legislature on July 31, 2025, and the 2026 session left the analysis standing. The Department put the cost of the standard deduction at about $45 million a year and the revenue kept by not following the SALT cap at about $52 million. No bill to match the tips, overtime or senior deductions reached the governor.

What did not change: the rates

The six-bracket schedule enacted by HB 252 in 2024 took effect for tax year 2025 and applies unchanged to 2026. The brackets are set in statute and are not indexed for inflation, so a raise that keeps pace with prices still pushes a little more income into the next bracket each year. A single filer pays 1.5% on the first $5,500 of New Mexico taxable income and reaches the top 5.9% rate at $210,000; a joint return reaches it at $315,000. The full table is in New Mexico figures for 2026, and the walk down the form is in How New Mexico income tax works.

What flows through from the federal law

The standard deduction. PIT-1 line 12 is the federal standard deduction or federal itemized deductions, exactly as shown on Form 1040. The 2025 federal law made the larger standard deduction permanent and raised it again, so for 2026 a non-itemizer deducts $16,100 single or married filing separately, $24,150 head of household, or $32,200 married filing jointly on the New Mexico return. New Mexico publishes no figure of its own. The extra federal standard deduction for age 65 or blindness is inside the line 12 figure too, so it also flows through.

Car-loan interest. The Department lists the new federal deduction for interest on a loan for a new U.S.-assembled car, up to $10,000 a year for 2025 through 2028 with an income phase-out, as flowing through to New Mexico, at a cost of about $7.6 million a year. Where it lands on the 2026 PIT-1 is to come (verify); the Department had not published the 2026 form when this was written.

Bonus depreciation and Section 179. A Schedule C business, a farm or a rental that claims 100% bonus depreciation or the higher Section 179 limit on the federal return reduces federal AGI, and New Mexico accepts the AGI. SB 151 (Laws 2026, chapter 69) decouples the corporate income tax from the excess bonus depreciation and the 163(j) interest change for tax years beginning January 1, 2027. The Department’s legislative summary files that change under corporate income tax only, and no personal income tax decoupling was enacted (verify that Section 1 of SB 151 reaches only the Corporate Income and Franchise Tax Act and not pass-through owners).

The 2026 limit on itemized deductions. Beginning with 2026, the federal law trims itemized deductions for taxpayers in the 37% bracket. Because New Mexico takes the federal itemized figure as shown, the trimmed figure is what reaches line 12.

What does not flow through

Tips and overtime. The federal “no tax on tips” and “no tax on overtime” provisions are deductions taken below adjusted gross income on Form 1040, and they are not part of the standard or itemized deduction New Mexico borrows. Tips and overtime are in federal AGI, federal AGI is PIT-1 line 9, and nothing on Schedule PIT-ADJ takes them back out (verify against the 2026 PIT-ADJ when published). A server or a nurse who owes no federal tax on $8,000 of tips or overtime still owes New Mexico tax on all of it.

The $6,000 senior deduction. Same mechanics, same result. The federal deduction for taxpayers 65 and older does not reach PIT-1. New Mexico’s own age-65 break is the exemption of up to $8,000 on Schedule PIT-ADJ, and it is only available at low incomes: it is gone entirely at AGI above $28,500 single or $51,000 joint. See New Mexico for retirees.

The SALT cap. The federal cap on the state and local tax deduction rose to $40,000 for 2025, with an income phase-down, and New Mexico does not conform. An itemizer adds back on PIT-1 line 10 the state and local income (or sales) taxes deducted on Schedule A line 5a. Property taxes are not added back. So a bigger federal SALT deduction, to the extent it is income tax, becomes a bigger New Mexico add-back rather than a bigger New Mexico deduction. Owners of partnerships and S corporations have the state’s elective pass-through entity tax at 5.9% as a workaround for the federal cap; that election is made by the business, not on PIT-1.

Below-the-line items generally. The qualified business income deduction and the non-itemizer charitable deduction that begins in 2026 are outside federal AGI and outside the line 12 deduction, so they do not reduce New Mexico income (verify against the 2026 instructions).

What the 2026 legislature did

The thirty-day session produced one omnibus tax bill and some housekeeping. None of it changes the 2026 return. In order of how likely you are to meet it:

SB 151 (Laws 2026, chapter 69), signed March 11, 2026. A $10,000 personal income tax credit for a physician licensed in New Mexico who provides care here at least 1,584 hours in the year, certified by the Department of Health, with unused credit carried forward up to three years, and ending after tax year 2031. Refundable credits for local news organizations: 30% of wages, up to $50,000 of wages per journalist and 75 journalists, capped at $4 million statewide, and a credit for local news printers of up to $10,000 per employee. The corporate decoupling from bonus depreciation described above. Every one of these applies to tax years beginning January 1, 2027, so the first return to carry them is the 2027 return filed in 2028. The same bill extended the high-wage jobs credit to jobs created before July 1, 2036.

HB 291 (Laws 2026, chapter 31), effective July 1, 2026. Amounts due to the Department may be rounded to the nearest five cents, a response to the end of the penny for people who pay in cash. The Department may now waive interest, not just penalty, when it extends a deadline for a disaster or public health emergency; before this, a disaster extension removed the penalty but interest kept running.

HB 285 (Laws 2026, chapter 9). Tightens the occupancy and documentation rules for the disabled-veteran property tax exemption. A county assessor matter, not an income tax one.

What the 2026 legislature did not do

Social Security. New Mexico exempts the federally taxable part of Social Security only when AGI is $100,000 or less single, $150,000 or less joint, head of household or surviving spouse, or $75,000 or less married filing separately. It is all or nothing: a dollar over the line and the whole taxable portion is New Mexico income. HB 92 would have given retirees above the lines a partial exemption starting at 20% for 2026 and 2027 and reaching 100% by 2034. It did not pass. The cliff stands for 2026.

Military retirement. The exemption for $30,000 of armed forces retirement pay, which the 2022 law would have let expire after 2026, was made permanent and extended to surviving spouses by HB 252 in 2024, so it continues. Two 2026 bills to remove the $30,000 cap, HB 221 and SB 116, died in committee.

Tips, overtime, seniors. No bill conforming to the federal deductions was enacted.

Rebates. The one-time $500 and $1,000 rebates of 2022 and 2023 were not repeated. Nothing was enacted for 2026.

The deadline is April 15 for everyone

For years New Mexico gave people who filed and paid electronically until the end of April. HB 218 (2025) removed that, effective June 20, 2025; the 2025 return filed this past spring was the first under the single date. The 2026 return and any balance due are due Thursday, April 15, 2027, however you file. The extension and payment rules are in New Mexico calendar and forms.

Credits that ended, and figures still to come

Four credits were repealed effective July 1, 2025 and are not available for 2026 projects or hires: the Solar Market Development credit, the Sustainable Building credit (projects certified before July 1, 2025 still carry through), the Foster Youth Employment credit and the Job Mentorship credit (verify against the 2025 PIT-1 instructions).

The 2026 Child Income Tax Credit amounts, the Low Income Comprehensive Tax Rebate table and the child day care credit income limit are indexed and to come; the Department normally publishes them in FYI-109 in January. The 2025 child credit ran from $637 per child at AGI up to $25,000 down to $26 above $350,000, and the 2026 amounts cannot be lower. The 2026 income limit for the property-valuation freeze for owners 65 or older is also to come. See Credits and breaks for New Mexico families.

The ballot

Nothing on the November 3, 2026 ballot changed the income tax rates, brackets or exemptions. The three general obligation bond questions, for senior centers, libraries and higher education buildings, are repaid from the statewide property tax levy and do not touch the return.