Tool | November 2017

State-by-State Guide to Taxes on Retirees

New Mexico

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The Bottom Line
Map of New Mexico

Least Tax Friendly

The Land of Enchantment is not a magical place for well-off retirees. Social Security benefits, retirement accounts and pensions are all taxable. The state does offer a retirement-income exemption of up to $8,000, but you must meet certain income restrictions to qualify. Plus, the sales tax has a broad reach, hitting most services in addition to goods. On the bright side, if you make it 100 years old, income tax is totally waived.

State Sales Tax

5.125% state levy. Localities can add as much as 3.56%, and the average combined rate is 7.55%, according to the Tax Foundation. New Mexico's tax is a gross receipts tax that covers most services.

Income Tax Range

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

High: 4.9% (on taxable income over $16,000 for single filers and over $24,000 for married couples filing jointly)

Effective income tax rate: 4.1%/individual, 4.6%/joint

Social Security

Benefits are taxed. But Social Security income can be included as part of an overall retirement-income exemption of up to $8,000 per person, subject to income restrictions.

Exemptions for Other Retirement Income

The state offers a low- and middle-income exemption, with a maximum exemption of $2,500. To qualify, adjusted gross income must be $36,667 or less for single filers, $27,500 or less for married filing separately, or $55,000 or less for married filing jointly or head of household.

A retirement-income exemption of up to $8,000 applies for people 65 and older. Single filers with an adjusted gross income under $28,500, married couples filing jointly earning less than $51,000 and married taxpayers filing separately with less than $25,500 qualify for this exemption.

New Mexico seniors 65 or older with a modified gross income of $22,000 or less may qualify for a low-income comprehensive tax rebate. Seniors with at least $28,000 in out-of-pocket medical expenses for themselves, their spouses or their dependents during the tax year may also claim a $2,800 tax credit. In addition, New Mexico seniors with $28,000 or more in out-of-pocket medical expenses may exempt up to $3,000 in income from their state income taxes.

IRAs

Qualifies for retirement-income exemption.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Qualifies for retirement-income exemption.

Private Pensions

Qualifies for retirement-income exemption.

Public Pensions

Qualifies for retirement-income exemption.

Property Taxes

The median property tax on New Mexico's median home value of $158,400 is $1,197.

Tax breaks for seniors: There is a property tax rebate for seniors. Homeowners 65 and older who earn $16,000 or less are eligible for a property tax credit of up to $250 (married filing jointly) or $125 (single taxpayers). Also, low-income homeowners 65 or older can apply to have the tax valuation of their property frozen. Residents of Los Alamos and Santa Fe counties who earn $24,000 or less may also qualify for a low-income property tax rebate.

Inheritance and Estate Taxes

There is no inheritance tax or estate tax.