Does New Mexico tax military retirement?

Does New Mexico Tax Military Retirement?

As a retiree, it’s essential to understand the tax implications of your retirement income in the state where you live. For military retirees, this is particularly important, as they may be moving to a new state or considering retirement in a new location. In this article, we’ll explore the answer to the question, "Does New Mexico tax military retirement?"

Short Answer:

New Mexico does tax military retirement benefits, but the tax rate is relatively low compared to other states. The state taxes military retirement income at a flat rate of 4.9%, which is lower than the federal income tax rate of up to 37%. However, it’s essential to note that some veterans may be exempt from state taxes on their military retirement benefits.

Understanding the Taxation of Military Retirement Benefits in New Mexico:

The taxation of military retirement benefits in New Mexico is governed by the New Mexico Military Retirement Tax Exemption Act. This act exempts from state taxation the first $12,000 of military retirement income per year. This means that the first $12,000 of military retirement benefits received by a veteran in a given year is exempt from state income tax.

Exemptions and Deductions:

While New Mexico does tax military retirement benefits, there are some exemptions and deductions that veterans may be eligible for:

• Disabled Veterans: Veterans with a service-connected disability may be exempt from state income tax on their military retirement benefits.
• Surviving Spouses: The surviving spouse of a veteran who died while on active duty or as a result of a service-connected disability may be exempt from state income tax on their military retirement benefits.
• Service-Connected Disability: Veterans with a service-connected disability may be eligible for a state income tax exemption on their military retirement benefits.
• Cost-of-Living Adjustment (COLA): Some veterans may be eligible for a COLA, which is a cost-of-living adjustment to their military retirement benefits. This COLA is tax-free.

Tax Credits:

In addition to exemptions and deductions, some veterans may be eligible for tax credits:

• Veterans’ Tax Credit: New Mexico offers a tax credit of up to $100 to eligible veterans who are at least 65 years old or disabled.
• Disability Compensation Tax Credit: Veterans who receive disability compensation for a service-connected disability may be eligible for a tax credit of up to $500.

How to Claim the Exemption:

To claim the exemption on military retirement benefits in New Mexico, veterans must file a Form 1040NM, which is the New Mexico individual income tax return. The form includes a section for reporting military retirement income and claiming the exemption.

Conclusion:

In conclusion, New Mexico does tax military retirement benefits, but the tax rate is relatively low compared to other states. The state taxes military retirement income at a flat rate of 4.9%, and some veterans may be exempt from state taxes on their military retirement benefits. By understanding the exemptions, deductions, and tax credits available, veterans can minimize their tax liability and maximize their retirement income.

Additional Resources:

For more information on the taxation of military retirement benefits in New Mexico, veterans can contact the New Mexico Taxation and Revenue Department or consult with a tax professional.

Table: New Mexico Military Retirement Tax Exemption Act

Table: New Mexico Veterans’ Tax Credit

Table: New Mexico Disability Compensation Tax Credit