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 nonresident 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.

“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 Tables located in the FYI-104 to determine the proper amount to withhold.

Reporting Tax Withheld

Income and withholding information returns are generally required to be reported to the Department by the last day of February. The link below for the Department’s publication FYI-330, describes all of the requirements, due dates and filing methods available.

Important reminder for employers:
An employer who files Form ES-903A, Quarterly Wage and Contribution Report, to the New Mexico Department of Workforce Solutions, or Form TRD-31109, Quarterly Wage, Income, Withholding and Workers’ Compensation Fee Report to TRD, is not required to submit Forms W-2 to TRD.

Withholding Tax Rates
Gross Receipts Tax
Worker’s Compensation Fee
Oil and Gas Proceeds Withholding Tax
Pass-Through Entity Withholding Tax
FYI-330 Income and Withholding Information Returns and Filing Methods