How Your Corporation Will Be Taxed
In this guide, you'll learn about the main types of tax in New Mexico that apply to corporations, including sales, self-employment, corporate and federal taxes.
How your corporation is taxed will depend on whether it's an S Corp or a C Corp.
New Mexico State Tax
There are three types of New Mexico tax you must pay to the NM Taxation and Revenue Department: income, gross receipts and franchise.
Important: All of these taxes apply whether you have a C Corp or an S Corp.
New Mexico Income Tax
Anyone who takes earnings out of your corporation will need to pay NM income tax and will be taxed at the state's standard rates. Any employees will also need to pay state income tax. The current income tax brackets for New Mexico vary depending upon your filing status and income. The top tax bracket is 4.9 percent.
New Mexico Gross Receipts Tax
Most states have a Sales and Use Tax that is applied to the sale of physical products (such as electronics, cars, books, furniture, appliances, raw materials, etc.) or certain services. New Mexico is different in that it levies a gross receipts tax on businesses on the total amount of money or other consideration received from certain activities.
The Gross Receipts Tax rate varies throughout the state from 5.125 percent to 9.4375 percent. There is a variance because the total rate combines rates imposed by the state, counties, and, if applicable, municipalities where the businesses are located. Your corporation will pay the total Gross Receipts Tax to the NM Taxation and Revenue Department, which then distributes the counties’ and municipalities’ portions to them.
NM Corporate Income and Franchise Tax
Some states — including New Mexico — levy a tax on certain businesses for the right to exist as a legal entity and do business in the state. This is usually called a franchise tax, transaction tax or privilege tax. In New Mexico, it's the Corporate Income and Franchise Tax.
New Mexico talks about the Corporate Income and Franchise Tax as if they are one, but in reality, they are separate.
Corporate Income Tax
In New Mexico Corporate Income Tax is imposed on the net income of every domestic corporation and every foreign corporation that has income from property or employment within this state.
New Mexico currently holds two tax brackets for Corporate Income Tax. Taxable income amounting to less than $500,000 is taxed at 4.8 percent, and anything over is taxed at $24,000 plus 5.9 percent.
Franchise Tax
New Mexico Corporate Franchise Tax is the obligation of every domestic and foreign corporation, including S corporations, that either engages in business in New Mexico or exercises its corporate franchise in this state, whether actively engaged in business or not.
Your corporation's franchise tax is due at the same time as your corporate income tax and is $50.
Some corporations may be exempt from corporate income tax, but that does not exclude you from franchise tax. Talk to your accountant or tax preparer, or contact the NM Taxation and Revenue Department to determine whether you're required to pay corporate income tax and to ensure you're paying the correct amount.
Federal Taxes for Corporations
Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your New Mexico corporation is paying the correct amount, and that you're paying the correct individual amount.
Federal Self-Employment Tax
Whether and how you pay this tax depends on whether you have a C Corp or an S Corp.
Federal Taxes for C Corps
All shareholders who earn wages or a salary from a C Corporation must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA) and covers Social Security, Medicare and other benefits. The current self-employment tax rate is 15.3 percent.
You’ll be able to deduct some of your business expenses from your income when calculating how much self-employment tax you owe.
Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:
- On a salary of $36,000, you would pay self-employment tax of $5,508.
- On a salary of $56,000, you would pay self-employment tax of $8,568.
- On a salary of $76,000, you would pay self-employment tax of $11,628.
- On a salary of $96,000, you would pay self-employment tax of $14,688.
Federal Taxes for S Corps
The Internal Revenue Service allows a corporation to be treated as an S Corporation for tax purposes, provided your business meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary and other income as distributions or withdrawals.
You do this by filing Form 2553, also known as an S Corp Election form, with the IRS. Incfile can also file the form for you. Use our S Corp Tax Calculator to get an idea of how much money you could save with this election.
Consult with your accountant or tax advisor for more information on reducing your self-employment tax through an S Corporation tax election.
You can do this by making an “S Corporation Tax Election” with the IRS using Form 2553. We can file your Form 2553 with the IRS on your behalf.
Federal Income Tax
You must pay regular federal income tax on any wages or salary your corporation pays you, regardless of its type. The amount of income tax you pay depends on your earnings, current income tax bracket, deductions and filing status.
Speak to your accountant or tax professional for more information.
Taxes Specific to C Corporations
Regardless of the state where your corporation is based, corporate taxes can get pretty complicated. We provide some basic information here, but we strongly encourage you to consult with a tax professional to ensure your corporation pays the right taxes in the right amounts to help you avoid penalties, fines and, worst of all, tax audits.
Corporate Tax
Unlike a limited liability company or an S Corporation, a C Corporation is required to file a corporate tax return and pay taxes on any profits.
When those profits are paid to shareholders as dividends, they will also be subject to taxation on the shareholders' personal tax returns.
This is often referred to as “double taxation,” and is one reason many business owners prefer to file their taxes as S Corporations.
Note: It is possible for a C Corp to file taxes as an S Corp. Consult with your accountant or professional tax advisor for more information.
Stock Dividends
A C Corporation may pay shareholders dividends as a share of the profits of the company. The value of dividends to which each shareholder is entitled depends on how many shares they own.
Dividends distributed to shareholders are taxed twice — first at the corporate level as profit (on the corporation’s Form 1120, the U.S. Corporation Income Tax Return) and again at the individual level as stock dividends (on the shareholder's Form 1040, the U.S. Individual Income Tax Return).
Taxes Specific to S Corporations
You must pay federal income tax on both your salary and any distributions you take from the business.
Incfile provides a complete Business Tax Filing service.
Employee and Employer Taxes
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your unique situation.
Employer Payroll Tax Withholding
All employers are required to withhold federal taxes from their employees’ wages. You’ll withhold 7.65 percent of their taxable wages, and your employees will also be responsible for 7.65 percent, adding up to the current federal tax rate of 15.3 percent.
Speak to your accountant for more information.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and state income tax, your employees may need to file their own tax returns.
Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, such as employee compensation insurance or unemployment tax.
Other Taxes and Duties
Depending on your industry, you may be liable for certain other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties.
Speak to your accountant about any other taxes or duties you may need to withhold or pay.
Estimated Taxes
Most corporations must pay estimated taxes throughout the year — on a quarterly basis — depending on the amount of profit and income you expect to make. Per the IRS:
"Corporations must generally make estimated tax payments if they expect their estimated tax (income tax less credits) to be $500 or more."
The most common types of estimated tax are:
Federal income tax
Federal self-employment tax
C Corporation
If you expect to owe $500 or more in income tax, you must make four quarterly estimated tax payments to the IRS. You'll estimate your total tax on Form 1120-W, then pay 25% on each due date. Please note that the IRS will no longer be updating Form 1120-W, so follow up with your accountant with any questions on estimated tax payments after 2023.
Important: This applies to you as the owner of the C Corporation, not the business itself. A C Corporation does not pay income tax.
S Corporation
It's a little less straightforward for an S Corp, which will pay estimated taxes by filing an IRS Form 1120-S, which is the income tax return form for S Corps.
Also, as the owner of an S Corp, you'll need to make estimated payments on self-employment tax.
Learn more on the IRS website, and speak to your accountant for more information. Or use Incfile's Business Tax Filing service.
FAQs on New Mexico Taxes
No. New Mexico does not have a sales tax, however there is a gross receipts tax applied to businesses, which may vary among cities and counties. You can find more information above.
Yes. The State of New Mexico does have an income tax. You can find more information above.
Yes, it's referred to as the New Mexico Corporate Income and Franchise Tax. You'll find more information above.
Yes. In most cases, you must pay estimated taxes to the federal government, whether you run a C Corp or an S Corp. You'll find more information above.
Launch
Your Business with Incfile
No contracts. No surprises.
Only $0 + state fee to launch your business.
Start Now