New Mexico has a progressive income tax with rates from 1.5% to 5.9%. Since tax year 2022, Social Security is exempt for individuals with AGI under $100,000 and couples under $150,000. Instead of a traditional sales tax, New Mexico uses a Gross Receipts Tax (GRT) levied on businesses, with combined state and local rates that vary by location. Military retirement pay is exempt up to a statutory cap. New Mexico has no estate or inheritance tax.
At a glance
Key Facts
State Income Tax
Progressive 1.5–5.9% across 6 brackets; top rate 5.9% applies above $210,000 single / $315,000 married (in effect since 2021)
Social Security
Fully exempt for individuals with AGI under $100,000; married under $150,000 (since tax year 2022); higher-income taxpayers still owe income tax on Social Security
Gross Receipts Tax (GRT)
New Mexico’s unique alternative to sales tax; a state rate plus local additions that vary by location (see the NM Taxation and Revenue Department GRT rate schedule); technically a business tax but typically passed to consumers
Military Retirement
Exempt from New Mexico income tax up to a statutory cap (verify the current limit with NM TRD); treatment of PERA and ERB (state pension) income should also be confirmed with NM TRD
Estate & Inheritance Tax
None — New Mexico has no state estate tax and no inheritance tax
Introduction
New Mexico has several tax features that distinguish it from other western states. The state’s income tax system is progressive with six brackets, topping out at 5.9% for high earners — a rate in effect since 2021 that applies only to income above $210,000 for single filers or $315,000 for married filers. For the majority of New Mexicans in lower and middle income brackets, the effective rate is considerably lower.
Recent changes significantly improved New Mexico’s attractiveness for retirees: beginning with tax year 2022, the state exempts Social Security for individuals with AGI under $100,000 (married: $150,000), and it also exempts military retirement pay up to a statutory cap. New Mexico has also long been recognized as a low-cost, warm-climate retirement destination offering a genuine quality-of-life value proposition compared to neighboring Arizona and Texas.
New Mexico’s approach to consumption taxes is unique: rather than a standard sales tax, the state uses a Gross Receipts Tax (GRT) that is technically levied on businesses rather than on individual consumers at the point of sale. In practice, the cost is typically passed to consumers, but the legal distinction matters for businesses and creates some different exemption patterns than a standard sales tax. This guide covers all major New Mexico taxes for workers, retirees, and business owners.
Section 01
New Mexico Income Tax: Progressive Brackets and the 2021 High-Earner Rate
New Mexico’s Six-Bracket Progressive System
New Mexico uses a progressive income tax with six brackets. For single filers in 2026, the brackets are:
1.5%: Up to $5,500
3.2%: $5,501 to $16,500
4.3%: $16,501 to $33,500
4.7%: $33,501 to $66,500
4.9%: $66,501 to $210,000
5.9%: Over $210,000
For married filing jointly, the brackets are wider, with the 5.9% top rate applying above $315,000. The 5.9% rate has applied since 2021 and affects only the highest earners.
The 2021 Top Rate: Context and Impact
New Mexico’s 5.9% top rate is competitive with, though slightly above, neighboring states like Colorado (4.4% flat) and Utah (4.45% flat). It is, however, dramatically lower than California (top rate 13.3%) and well below Minnesota (top rate 9.85%). For a single filer earning $60,000–$100,000 in wages, the effective state income tax rate — total tax divided by total income — is roughly 2.8–3.6%, making New Mexico moderately competitive in the region.
Income Tax Comparison: New Mexico vs. Neighboring States
Annual Income
New Mexico (up to 5.9%)
Colorado (4.4% flat)
Arizona (2.5% flat)
Texas (0%)
$50,000
~$1,184
~$1,492
~$848
$0
$100,000
~$3,569
~$3,692
~$2,098
$0
$200,000
~$8,469
~$8,092
~$4,598
$0
$300,000
~$14,108
~$12,492
~$7,098
$0
Single filer, wages only, after the standard deduction (2026). Actual amounts vary based on filing status, deductions, and specific bracket thresholds. Arizona moved to a flat 2.5% rate in 2023.
New Mexico Standard Deduction and Modifications
New Mexico allows a deduction equal to the federal standard deduction or federal itemized deductions, whichever is higher — making New Mexico’s starting point fairly aligned with federal taxable income. New Mexico then applies its own additions and subtractions, most notably the retirement income and Social Security exemptions discussed below.
Section 02
The Gross Receipts Tax: New Mexico’s Unique Consumption Tax
What Makes New Mexico Different
Unlike nearly every other US state (Hawaii’s General Excise Tax is the other well-known gross-receipts-style tax), New Mexico does not have a traditional sales tax levied on the consumer. Instead, New Mexico imposes a Gross Receipts Tax (GRT) on the “privilege of doing business” in the state. The GRT is legally a tax on the seller — the business — not on the buyer. However, businesses are expressly permitted to pass the GRT cost to consumers separately on invoices and receipts, and virtually all do. The practical effect for most everyday purchases is similar to a sales tax: you pay more at the register.
GRT Rates by Location
The state sets a GRT rate, and municipalities and counties can add local increments on top of it, so the combined rate differs by city and county and changes on 1 January and 1 July. Check the New Mexico Taxation and Revenue Department's published GRT rate schedule for your location.
What’s Different Under GRT vs. a Standard Sales Tax
Several categories work differently under the GRT than under a traditional sales tax:
Services: Many professional services (legal, accounting, consulting) that would not be subject to sales tax in other states ARE subject to GRT in New Mexico, because the GRT applies to gross receipts from all business activity
Prescription drugs: Exempt from GRT
Groceries: Certain food items have a reduced GRT rate or exemption under New Mexico law, though the rules are more complex than a simple grocery exemption
Medical services: Healthcare services provided by licensed practitioners are generally exempt
Manufacturing: Manufacturers may deduct certain inputs from their GRT base, providing relief similar to other states’ manufacturing exemptions
Property Tax: Moderate with Unique Exemptions
New Mexico’s effective property tax rate of approximately 0.63% of market value is moderate — below the national average but above the lowest-rate western states. Property is assessed at one-third of market value for residential property; the millage rate then applies to this assessed value. The Head of Family exemption provides a $2,000 reduction in taxable value (applied to assessed value, not market value) for heads of household on their primary residence. New Mexico also provides a veterans’ exemption for qualifying veterans and a valuation freeze for qualifying low-income seniors; check current amounts with your county assessor.
Section 03
Retirement Income, Social Security Exemption, and New Mexico as a Retirement Destination
The 2022 Social Security Exemption: A Major Shift
Before tax year 2022, New Mexico generally taxed Social Security benefits as income, with no broad Social Security exemption (only limited age-based deductions for some older taxpayers). This was a significant deterrent for retirees considering New Mexico. Beginning with tax year 2022, the legislature enacted a broad Social Security exemption:
Single filers: Social Security is fully exempt if AGI is under $100,000
Married filing jointly: Social Security is fully exempt if AGI is under $150,000
Above those thresholds: Social Security benefits are included in taxable income as before
For the vast majority of New Mexico retirees, this exemption eliminates Social Security from the state income tax calculation entirely. A retired couple with $80,000 in AGI (including Social Security, pension, and investment income) now owes no New Mexico income tax on their Social Security benefits. This change, combined with the state’s military retirement exemption, has made New Mexico more competitive for retirees.
New Mexico Pension and Retirement Income Tax Treatment
Military retirement pay: Exempt from New Mexico income tax up to a statutory cap (the cap has changed in recent years; verify the current limit with NM TRD)
New Mexico Public Employees’ Retirement Association (PERA) and Educational Retirement Board (ERB) pensions: Treatment should be confirmed with NM TRD; we have not verified a blanket exemption from an official source
Federal civil service pensions (CSRS/FERS): Generally included in New Mexico taxable income unless an exemption applies
Private pensions, IRA, and 401(k) distributions: Taxable at standard progressive rates
New Mexico as a Retirement Destination
New Mexico has several structural advantages for retirees considering the Mountain West:
Low cost of living: Housing, groceries, and services are generally less expensive than neighboring Colorado or Arizona cities
Warm climate: Southern New Mexico (Albuquerque, Las Cruces) offers significantly warmer winters than Colorado or northern states
Cultural richness: Santa Fe and Taos are nationally recognized arts and culture destinations with active retiree communities
Proximity to Texas and Arizona: Major cities in all three neighboring states are within driving distance for family visits or specialized medical care
New Mexico vs. Neighboring States for Retirees
State
Income Tax
SS Exempt?
Military Ret. Exempt?
Avg Property Tax
New Mexico
1.5–5.9%
Yes (AGI under $100k/$150k)
Capped exemption
~0.63%
Arizona
2.5% flat
Yes (fully)
Yes
~0.48%
Colorado
4.4% flat
Varies by age
Varies
~0.50%
Texas
None
N/A
N/A
~1.40%
Nevada
None
N/A
N/A
~0.50%
Compared to Arizona, New Mexico’s income tax is somewhat higher for middle-to-upper earners. However, New Mexico’s lower housing costs in cities like Albuquerque and Las Cruces — and the state’s Social Security exemption (below the income threshold) — can make the overall cost of retirement in New Mexico competitive or superior depending on individual circumstances.
A New Mexico CPA can help you confirm your Social Security exemption eligibility, navigate the Gross Receipts Tax as a business owner, and maximize pension and military retirement exemptions.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
New Mexico has a progressive income tax with six brackets: 1.5%, 3.2%, 4.3%, 4.7%, 4.9%, and 5.9%. The 5.9% top rate applies only to income above $210,000 for single filers or above $315,000 for married filing jointly. For a single filer earning $60,000–$150,000 in wages, the effective state rate is roughly 2.8%–4.0%.
Q
Does New Mexico tax Social Security benefits?
Beginning with tax year 2022, New Mexico exempts Social Security benefits for single filers with AGI under $100,000, and for married filers filing jointly with AGI under $150,000. If your income exceeds these thresholds, Social Security benefits are included in New Mexico taxable income at the standard progressive rates. This was a significant improvement from prior law, when New Mexico had no broad Social Security exemption.
Q
What is New Mexico’s Gross Receipts Tax and how is it different from a sales tax?
New Mexico’s Gross Receipts Tax (GRT) is legally a tax on businesses for the privilege of conducting business in New Mexico, rather than a tax on the consumer at the point of sale. The state sets a GRT rate and local additions bring combined rates higher in many cities. Businesses can separately state and pass the GRT to consumers, so in practice it works similarly to a sales tax. One key difference: GRT applies to many professional services that would not be taxed under a traditional sales tax in other states.
Q
Is military retirement pay taxed in New Mexico?
New Mexico exempts military retirement pay from state income tax up to a statutory cap (the cap has changed in recent years, so verify the current limit with NM TRD). We have not verified from an official source how PERA and ERB pensions or federal civil service pensions (CSRS/FERS) are treated; confirm with NM TRD or a tax professional.
Q
What is the property tax rate in Albuquerque?
New Mexico’s effective property tax rate averages approximately 0.63% of market value statewide. New Mexico assesses residential property at one-third of market value before applying millage rates. The Head of Family exemption provides a $2,000 reduction in taxable assessed value for heads of household on their primary residence.
Q
Does New Mexico have an estate tax or inheritance tax?
No. New Mexico has no state estate tax and no inheritance tax. Assets inherited from New Mexico residents are not subject to any New Mexico state-level transfer tax. The federal estate tax may apply to very large estates exceeding the federal exemption threshold, but New Mexico imposes no additional state tax.
Q
Is New Mexico a good state for retirees from a tax perspective?
New Mexico has become more competitive for retirees since the 2022 reforms. Key advantages: Social Security is now exempt for most income levels (under $100k single/$150k married) and military retirement pay is exempt up to a statutory cap. Property taxes are moderate at ~0.63%. The main drawback is the progressive income tax reaching 5.9% for higher earners and the Gross Receipts Tax on purchases. For retirees with Social Security as a primary income source, the combined picture can be favorable, especially when combined with New Mexico’s lower overall cost of living compared to Colorado or Arizona.
Disclaimer:This guide provides general tax information for educational purposes only. New Mexico tax rates and rules change regularly. Always consult a qualified tax professional before making significant tax decisions.