State-by-State Guide to Taxes on Retirees
Tool | December 2021

New Mexico State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.

New Mexico

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The Bottom Line
Flag of New Mexico


The Land of Enchantment is not a magical place for well-off retirees. Social Security benefits, retirement accounts and pensions are all taxable (although Social Security benefits are not taxed if your income is below a certain level). The state does offer a retirement-income exemption of up to $8,000, but you must meet certain income restrictions to qualify.

New Mexico's sales tax has a broad reach, hitting most services in addition to goods. As a result, this tax tends to hit retirees fairly hard.

On the bright side, property taxes are on the low side, and there are property tax credit and deferral programs available to low-income seniors. Plus, if you live to be 100 years old, the state's income tax is waived.

Income Tax Range

Low: 1.7% (on up to $5,500 of taxable income for single filers and $8,000 for joint filers)

High: 5.9% (on taxable income over $210,000 for single filers and over $315,000 for married couples filing jointly)

Taxation of Social Security Benefits

Beginning in 2022, Social Security benefits are not tax by the state for single filers with an adjusted gross income (AGI) of $100,000 or less, joint filers and head-of-household filers with an AGI of $150,000 or less, and married people filing separate returns with an AGI of $75,000 or less. (Prior to 2022, Social Security benefits were taxed to the same extent they were taxed at the federal level.)

Tax Breaks for Other Retirement Income

Taxpayers age 65 or older can exclude up to $8,000 of income. Federal adjusted gross income cannot exceed $28,500 for single filers, $51,000 for joint filers, or $25,500 for married taxpayers filing a separate return.

Beginning in 2022, up to $10,000 of military retirement pay is exempt from tax. The exemption amount is increased to $20,000 for 2023, and then to $30,000 for 2024 to 2026. It doesn't apply after 2026.

In addition, taxpayers age 100 or older can exclude all income. (Since New Mexico is a community property state, married centenarians can only exclude half of community income.)

Railroad Retirement benefits are fully exempt.

Sales Tax

5.125% state levy (5% effective July 1, 2022; 4.875% effective July 1, 2023, and then subject to reversion to 5.125% if tax revenues drop below a certain level). Localities can add as much as 4.313%, and the average combined rate is 7.84%, according to the Tax Foundation. New Mexico's tax is a gross receipts tax that covers most services.

Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4% excise tax
Prescription Drugs: Exempt

Real Property Taxes

Homeowners 65 and older who earn $16,000 or less are eligible for a property tax credit of up to $250 (or $125 for married couples filing separately). Those who live in Los Alamos or Santa Fe Counties and earn $24,000 or less may also qualify for an additional credit of up to $350 ($175 if married filing separately).

Low-income homeowners 65 or older can also apply to have the tax valuation of their property frozen if their income is $32,000 or less.

Annual Car Taxes and Fees

No annual vehicle tax or fee is imposed.

Estate and Inheritance Taxes

No estate or inheritance tax.