If you're a New Mexico resident and pay income tax to another state on income that is also taxable in New Mexico, you may qualify for the Credit for Taxes Paid to Another State.
This credit helps prevent the same income from being taxed twice.
Who Qualifies?
You may qualify if:
- You are a New Mexico resident.
- You paid income tax to another state.
- The same income is taxable in both New Mexico and the other state.
Important Rules
When calculating the credit:
- Do not include tax withholding.
- If the income is not taxable in both states, no credit is allowed.
- The credit cannot exceed the lowest of:
- Your New Mexico income tax liability.
- The tax paid to the other state.
- The New Mexico tax attributable to the income taxed by both states.
Required Documentation
If you claim this credit, you must attach:
- A copy of the other state's income tax return.
- The New Mexico worksheet used to calculate the allowable credit.
How the Program Handles the Credit
If you have both a:
- New Mexico Resident return, and
- Nonresident return for another state
The program generally calculates this credit automatically when the same income is taxed by more than one state.
If you are filing a Part-Year New Mexico return, you must enter the credit information manually.
Program Entry for Part-Year Residents
To enter the credit manually:
- Go to State Section.
- Edit the Part-Year New Mexico return (Click the 3 dots)
- Credits.
- Choose Credit for Taxes Paid to Another State.
- Click Credit for Taxes Paid to Another State (again).
Additional Notes
If you allocate income using Schedule PIT-B, only income that is allocated or apportioned to New Mexico may qualify for the credit. Income allocated outside New Mexico generally does not qualify for the credit for taxes paid to another state.
A common example is a New Mexico resident who earns income in another state and pays tax there. If that same income is also included in New Mexico taxable income, the credit may be available to help offset double taxation.