January 8, 2021
New Mexico top personal income tax rate increased starting in 2021; withholding tables released; 2021 Form W-2 filing reminders
The New Mexico Department of Taxation & Revenue announced that the top individual income tax rate for 2021 will be 5.9% for individuals with taxable income above $210,000 for single filers and $315,000 for married couples filing joint. The previous top income tax rate was 4.9%, which remains in effect for taxpayers with taxable income below the new 5.9% thresholds. (Press release.)
2021 withholding tables released
The Department released the 2021 income tax withholding tables to its website. (Publication FYI-104, New Mexico withholding tax effective January 1, 2021.)
2019 legislation provided for the increased top personal income tax rate under certain conditions
Under 2019 legislation, the new tax brackets were to take effect if fiscal year (FY) 2020 recurring general fund revenue did not exceed the previous year's revenue by more than 5%. The general fund audit confirms that the FY 2020 recurring general fund revenue was $7.9 billion, 1.9% lower than the prior year.
According to the Department, the new top tax rate remains well below the 8.2% in effect prior to 2003, and it is expected to affect only the top 3% highest earning New Mexico taxpayers.
For more information on the legislation, see the Department's website or EY Tax Alert 2019-1501, 8-21-2019.
Continued use of federal Form W-4 for 2021
Unlike most other states, New Mexico continues to use the federal Form W-4 for state income tax withholding purposes. New Mexico does not have a state equivalent of the federal W-4 form. The Department advises that employees complete a copy of the federal Form W-4 for New Mexico state income tax purposes, writing "For New Mexico State Withholding Only" across the top in prominent letters. Note, however, that it is not mandatory for employees to complete a federal Form W-4 for both the IRS and New Mexico; it is optional when New Mexico withholding elections differ from federal.
Supplemental withholding rate increased
If federal income tax withholding is calculated using a supplemental rate, a flat 5.9% (up from 4.9%) of the supplemental wage or fringe benefit amount should be withheld for New Mexico state income tax withholding purposes. The same method used for calculating federal withholding on irregular or supplemental wages should be used for New Mexico income tax withholding. An employer that uses the cumulative method of withholding for federal withholding may use this same method for New Mexico state income tax withholding.
If an employee has elected married but withhold at a higher single rate for federal income tax withholding, the single rate for New Mexico state withholding purposes must be used.
2020 Form W-2 reporting reminders
All employers are required to file calendar year 2020 Forms W-2 with the Department by January 31, 2021, and employers filing 25 or more Forms W-2 are required to file electronically via the Department's electronic reporting system (TAP). The filing of Forms 1099-NEC and 1099-MISC that report New Mexico income tax withholding is optional and not required by statute to be filed with the Department.
New Mexico withholding taxpayers must complete and keep for their records Form RPD-41072, Annual Summary of Withholding Tax. Submitting Form RPD-41072 to the Department is optional. This report allows for the taxpayer to reconcile the total amounts shown as withheld on annual withholding statements furnished to employees (federal Forms W-2, W-2G or 1099R) with the total tax withheld and paid to New Mexico on Forms CRS-1.
If the taxpayer has underreported income tax withheld on the withholding return, amended returns for the period(s) in which underreporting occurred should be attached and the difference remitted to the Department. If an overpayment of withholding was made, attach Form RPD-41071, Application for Refund, and the amended returns for the period(s) in which overpayments occurred.
For more information on reporting requirements, see FYI-330, Income and Withholding Information Returns and Filing Methods.
For more information on state withholding tax, go here.
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