Yes, New Mexico taxes military retirement pay, but it lets you exempt up to $30,000 of it from state income tax each year. The exemption is permanent, applies to armed forces retirees and their surviving spouses, and reduces your taxable retirement income dollar for dollar. Anything above $30,000 is taxed at the state’s graduated individual income tax rates, which run from 1.5% to 5.9%.
How the $30,000 Exemption Works
Section 7-2-5.13 of the New Mexico statutes lets an armed forces retiree or surviving spouse exclude up to $30,000 of military retirement pay from net income for state tax purposes.1Justia. New Mexico Statutes Section 7-2-5.13 – Exemption; Armed Forces Retirement Pay If your military retirement income is $30,000 or less, you owe nothing to New Mexico on it. If it’s $50,000, you’d pay state tax only on the $20,000 above the cap.
The exemption began in 2022 and was originally set to expire after the 2026 tax year. Senate Bill 125 in the 2024 session removed the expiration date, making the $30,000 exemption permanent as of January 1, 2025.2New Mexico Legislature. SB0125 Senate Bill 125 – 2024 Regular Session A 2025 bill, SB 497, would have lifted the cap and exempted all military retirement pay starting in 2026, but it died in committee.3New Mexico Legislature. SB0497 Senate Bill 497 – 2025 Regular Session The $30,000 cap is still the rule.
Who Qualifies
The statute defines an armed forces retiree as a former member of the United States armed forces who earned the right to separate from service with lifetime benefits, either through years of service or a service-connected disability.1Justia. New Mexico Statutes Section 7-2-5.13 – Exemption; Armed Forces Retirement Pay That covers retirees from the Army, Navy, Air Force, Marines, Coast Guard, and Space Force. If you draw a pension under the military retirement system, you qualify.
The surviving spouse of an armed forces retiree qualifies for the same $30,000 exemption on Survivor Benefit Plan payments.2New Mexico Legislature. SB0125 Senate Bill 125 – 2024 Regular Session One wrinkle under federal rules: a surviving spouse who remarries before age 55 loses SBP annuity payments entirely, so there would be no military retirement income left to exempt.4Defense Finance and Accounting Service. Understanding SBP, DIC and SSIA Remarriage at or after 55 does not affect the annuity.
National Guard and Reserve members who completed enough qualifying years to earn a reserve retirement fall within the definition once they begin collecting payments. Drill pay or annual training pay for Guard and Reserve members who haven’t yet retired is treated as active-duty or reserve compensation, not retirement pay, and doesn’t come under this exemption.
VA Disability and Combat-Related Compensation
If part of your military income arrives as VA disability compensation rather than retired pay, you don’t need the state exemption for that portion. VA disability payments are excluded from gross income at the federal level, so they never reach your federal return and never flow through to your New Mexico return. The same is true of Combat-Related Special Compensation, which DFAS classifies as a tax-free entitlement.5Defense Finance and Accounting Service. Combat Related Special Compensation (CRSC)
Only your taxable retirement pay counts toward the $30,000 cap. Consider a retiree with $45,000 in gross retirement whose VA disability waiver reduces the taxable portion to $27,000. The entire $27,000 fits inside the exemption, leaving no military retirement income taxable in New Mexico.
Claiming the Exemption on Your Return
You claim the armed forces retirement pay exemption on your New Mexico personal income tax return, Form PIT-1, with the exemption itself entered on Form PIT-ADJ, the schedule for additions, deductions, and exemptions. On the 2022 version of PIT-ADJ the line was 23, under the deductions section; line numbers shift between tax years, so check the current year’s instructions before filing. Both the form and the instructions are posted on the Taxation and Revenue Department’s website.6NM Taxation & Revenue Department. Personal Income Tax Forms
Enter the exemption as a positive number. If your total military retirement pay is $30,000 or less, enter the full amount; if it exceeds $30,000, enter $30,000. Hold onto your 1099-R and any supporting military retirement paperwork in case the department asks for it. New Mexico’s filing deadline is April 15, matching the federal date.
If You’re Not a New Mexico Resident
Your domicile decides whether New Mexico can tax your income at all. Under the federal Servicemembers Civil Relief Act, active-duty members don’t change legal domicile simply because orders station them in New Mexico, so military pay for a service member domiciled elsewhere isn’t subject to New Mexico tax. The Military Spouses Residency Relief Act gives a comparable protection to spouses who moved here solely to be with an active-duty partner.
Once you retire and settle in New Mexico permanently, you’re a resident for tax purposes, and your retirement income falls under New Mexico’s rules. That’s when the $30,000 exemption becomes your main shield. Retirement income earned by a non-resident is taxed by the state where that retiree lives, not by New Mexico, even if the military service that produced the pension happened on New Mexico soil.7Cornell Law School. New Mexico Admin Code 3.3.11.13 – Retirement Income