Employer's Guide to Unemployment Insurance Tax in New Mexico

Everything employers need to know about paying unemployment insurance taxes in New Mexico

If your small business has employees working in New Mexico, you’ll need to pay New Mexico unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In New Mexico, state UI tax is just one of several taxes that employers must pay. Other important employer taxes, not covered here, include federal UI tax, and state and federal withholding taxes.

Different states have different rules and rates for UI taxes. Here are the basic rules for New Mexico’s UI tax.

Register With the Department of Workforce Solutions

As a New Mexico employer subject to UI tax, your small business must establish a New Mexico UI tax account with the New Mexico Department of Workforce Solutions (DWS). You must register for the account online. Once registered, you’ll be issued a state UI account number. To register, go to DWS’s UI Employer Registration website.

In order to register, you will need to know your code with the North American Industry Classification System (NAICS) and have a federal employer identification number (EIN). The NAICS was created by the federal government to classify and analyze statistics for different kinds of businesses. New Mexico, however, uses the average tax rate for each of these kinds of businesses (industries) to assign a UI tax rate to new employers. You can apply for an EIN at IRS.gov. Generally, if you apply online, you will receive your EIN immediately.

There is no fee to register your business with DWS.

Rules for UI Tax Liability

If you are a New Mexico for-profit business, you generally will become liable for state UI taxes as soon as you have either:

  • paid an individual wages of $450 dollars or more in any calendar quarter in either the current or preceding calendar year, or
  • employed one or more persons (part-time workers included) in each of 20 different calendar weeks during either the current or the preceding calendar year (regardless of whether the same individual was employed on each day).

Different rules, not covered here, apply to agricultural (farm) workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations.

One piece of good news is that state UI tax payments generally can be credited against your Federal Unemployment Tax Act (FUTA) taxes.

Wage Base and Tax Rates

UI tax is paid on each employee’s wages up to a maximum annual amount. That amount, known as the taxable wage base, usually increases slightly every year or two in New Mexico. In recent years it has approached and then exceeded $24,000.

There is also a method for determining the state UI tax rate specifically for new employers. Like the taxable wage limit, the method and associated rates are subject to change. However, currently, the rate is the higher of:

  • the average tax rate for each industry average UI contribution rate for industries classified under NAICS, or
  • 1%.

NAICS is briefly discussed above. The rate remains in effect for two years. In recent years, the beginning rate has ranged from around 1.5% to around 3.25%, depending on the NAICS classification.

Established employers are subject to a lower or higher rate than new employers depending on an “experience rating.” This means, among other things, the amount of wages your business has paid and whether it has ever had any employees who made claims for state unemployment benefits.

File Scheduled UI Tax Reports and Payments

In New Mexico, UI tax reports and payments are due on or before the last day of the month immediately following the end of the calendar quarter. In other words, reports and payments are due by the following dates:

  • 1st Quarter returns and payments due on or before April 30
  • 2nd Quarter returns and payments due on or before July 31
  • 3rd Quarter returns and payments due on or before October 31, and
  • 4th Quarter returns and payments due on or before January 31.

If the due date falls on a Saturday, Sunday, or legal holiday, the report is due on the next department business day.

You must file your reports online. Login to DWS’s UI Online website to file. You should have an account established from when you first registered with DWS. You also can pay online via Automated Clearing House (ACH) debit.

You must file quarterly reports even if no wages were paid or no contribution or tax is due for the quarter—unless your liability has been terminated or suspended. You will be subject to a penalty if you fail to file or file late.

Post a Notice (Poster)

You are required to post a notice (poster) regarding state unemployment claims in a conspicuous place for all employees. The poster provides basic information to employees on the UI system. You will be issued a poster at the time of your initial UI tax registration. The poster never needs to be updated.

Do Not Misclassify Employees as Independent Contractors

Employers who use independent contractors rather than hiring employees are not subject to the UI tax. However, it’s important that you do not misclassify an employee as an independent contractor. If you do misclassify an employee, you could be subject to penalties or fines.

Using Payroll Service Companies

You may decide that it’s easiest to hand over responsibility for payroll, including UI taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes made by an outside payroll company.

Additional Information

This article touches on only the most basic elements of New Mexico UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and DWS websites for the latest information. In addition to state UI tax, employers have other responsibilities not covered in this article such as federal UI tax, state and federal withholding taxes, and required reporting of new hires. You can get more information about other small business tax issues in other articles here on Nolo.com.

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