The New Mexico income tax withholding law requires employers in the state to withhold the New Mexico tax from wages paid to all employees for service performed within the state and from wages of New Mexico residents for performing services outside the state. Because changes to the Internal Revenue Code are automatically adopted by New Mexico, compensation that is subject to federal withholding is also subject to state withholding. The definitions of employer, employee, and wages under New Mexico's law are also generally the same as for federal tax purposes. The amount that must be withheld each pay period may be determined using the information on the employee's federal Form W-4 and either the percentage method or the withholding tables provided by the Taxation and Revenue Department (TRD).
An employer that 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. Employers are not required to withhold taxes on wages paid to nonresidents who work 15 or fewer days in New Mexico per year. 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. Clergy, domestic workers, and agricultural workers are exempt from withholding.