If your small business has employees working in New Mexico, you’ll need to withhold and pay New Mexico income tax on their salaries. This is in addition to having to withhold federal income tax for those same employees. Here are the basic rules on New Mexico state income tax withholding for employees.
With rare exceptions, if your small business has employees working in the United States, you’ll need a federal employer identification number (EIN). You should obtain your EIN as soon as possible and, in any case, before hiring your first employee. EINs are issued by the IRS and you’ll need one first and foremost for federal taxes. In addition, some states use the federal EIN for state withholding tax purposes. Other states (like New Mexico) issue separate state tax ID numbers. You’ll need an EIN to register with the state (see below). You can apply for an EIN at the IRS website at (www.irs.gov). Generally, if you apply online, you will receive your EIN immediately.
Apart from your EIN, you also need to establish a New Mexico withholding tax account with the New Mexico Taxation and Revenue Department (TRD). You can register online or on paper. To register online, go to the TRDTaxpayer Access Point (TAP). To register on paper, use Form ACD-31015, Application for Business Tax Identification Number. You can submit Form ACD-31015 by regular mail or by fax. After you register you’ll receive a Combined Reporting System (CRS) identification number. If you register online you’ll receive the number instantly. If you register by mail or fax, you should receive the number within 1-2 weeks. There is no fee to register your business with the TRD.
All new employees for your business must complete both a federal Form W-4. Unlike some other states, New Mexico does not have a separate state equivalent to Form W-4, but instead relies on the federal form. You can download blank Forms W-4 from irs.gov. Clearly label W-4s used for state tax withholding as your state withholding form. You should keep the completed forms on file at your business and update them as necessary.
After you register your business, you should receive information from the TRD about how often you must report on and pay withholding taxes. This may, for example, be monthly or quarterly. In general, the more you withhold, the more frequently you’ll need to make withholding tax payments.
Monthly filers must report and pay online. Quarterly filers can report and pay online or by mail. To report and pay online, go to the TRD’s TAP webpage. To file on paper (if permitted), complete Form CRS-1, Combined Report Formand submit by regular mail along with your payment check.
The exact threshold dollar amounts for the different payment schedules, as well as other rules, may change over time so you should check with the DOR at least once a year for the latest information.
Reports and payments are due on the 25th of the month following the end of your reporting period. If the 25th falls on a Saturday, Sunday, or legal holiday, the report and payment are due the next business day.
The TRD provides several different methods for calculating how much tax to withhold. For more information, check the current version of TRD Publication FRY-104, New Mexico Withholding Tax (generally updated each year).
After the end of the year, you must file an annual summary (also known as an annual reconciliation) with the TRD that summarizes the employee taxes you’ve withheld during the year. The annual summary is in addition to providing each of your employees with a federal form W-2 summarizing the employee’s withholding for the year. Use Form RPD-41072, Annual Summary of Withholding Tax for CRS Filers. Some employers must include copies of the federal W-2s sent to all of their employees working in New Mexico. Alternatively, in lieu of submitting the paper Form RPD-41072, you can submit the equivalent information, along with the W-2s, electronically. Large employers (those with many employees) are required to file W-2s electronically. The annual summary is due on or before the last day of February.
For more information on filing your annual summary, such as the current minimum number of employees triggering the requirement to file W-2s electronically, check the current version of TRD Publication FYI-330, Income and Withholding Information Returns and Filing Methods. The publication generally is updated each year.
This article is only concerned with employees, not independent contractors. In general, different tax rules apply to independent contractors.
You may decide that it’s easiest to hand over responsibility for payroll, including withholding 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.
This article touches on only the most basic elements of New Mexico employee withholding taxes. Avoid possible penalties for making mistakes by checking both the IRS and TRD websites for the latest information. You also can get more information about small business tax issues in other articles here on Nolo.com.