Wage Withholding Tax
Employers must withhold a part of the employee’s wages for payment of income tax.
New Mexico bases its withholding tax on an estimate of an employee’s State income tax liability. The State credits taxes withheld against the employee’s actual income tax liability on the New Mexico personal income tax return. State withholding tax is like federal withholding tax.
Who Must Withhold
An employer who withholds a portion of an employee’s wages for payment of federal income tax must withhold state income tax. This includes employers of some agricultural workers. There is a limited exception for certain non-resident employees.
Also exempt from withholding tax is income wholly earned by a Native American member of a New Mexico federally recognized Indian nation, tribe or pueblo on the lands of the nation, tribe or pueblo where he or she is enrolled and lives.
The income earned from active-duty military service is also exempt from withholding requirements.
Definitions to be aware of:
- “Employer” is defined in Section 7-3-3 NMSA 1978. In general, “employer” means a person doing business in the state or deriving income from state sources who pays wages to an employee for services performed.
- “Employee” is defined in Section 7-3-3 NMSA 1978. In general, “employee” means a New Mexico resident who performs services either within or without the state for an employer. It also includes nonresidents who perform services within the state for an employer.
- “Wages” is defined in Section 7-3-3 NMSA 1978. In general, “wages” means payment in cash or other form for services performed by an employee for an employer.
Amount to Withhold
The amount of tax withheld may vary depending on how many allowances an employee claims on the federal W-4 form and how often wages are paid. Employers should refer to the New Mexico State Wage Withholding Tax Rates to determine the proper amount to withhold.
Reporting Tax Withheld
Income and withholding information returns are generally required to be reported to the New Mexico Taxation and Revenue Department (Department) by the last day of February. For more information, see the WWT forms below or the FYI-330 Income and Withholding Information Returns and Filing Methods.