Active-duty pay
Taxed
Active-duty pay taxable; combat zone exempt.
State Guide · NM
New Mexico — Military Tax Treatment
New Mexico's military retirement exemption was phasing in as of 2024 — the current cap is approximately $30K. Active duty and Guard pay are fully taxable. Verify the 2026 cap with NM DoR.
Tax treatment at a glance
Guard & Reserve drill pay
Taxed
Guard and Reserve drill pay is taxable New Mexico income. SCRA protections apply during federal activation but not routine drill.
Military retirement pay
Partially Exempt
Up to $30K of military retirement exempt (2024+ phase-in) — verify current cap with NM DoR.
The numbers · verified for tax year 2025
Top marginal rate
5.9%
Retirement-pay exemption
Up to $30,000
New Mexico exempts up to $30,000 of military retirement pay (and SBP payments) for 2025 — the top of the phase-in ($10k/2022 → $30k/2024–2026). A 2026 law removes the cap entirely.
Standard deduction
New Mexico starts from federal taxable income, so it effectively uses the federal standard deduction ($15,000 single / $30,000 MFJ for 2025). The graduated rate tops out at 5.9%.
VA disability compensation
Always tax-free
Federally tax-free under 38 USC § 5301. No state taxes VA disability compensation as income — New Mexico included.
Survivor Benefit Plan (SBP)
Follows retirement
SBP annuities may qualify for the retirement exemption — verify with New Mexico Taxation and Revenue.
Federal rules that override state law
SCRA — Servicemembers Civil Relief Act
Active-duty servicemembers pay state income tax only to their state of legal domicile — not the state where they are stationed. If you are from Texas and stationed in New Mexico, New Mexico cannot tax your military pay. This applies during all active duty periods and during Guard/Reserve mobilizations on federal (Title 10) orders.
MSRRA — Military Spouses Residency Relief Act
Military spouses can maintain their home-state domicile even when living in a different state due to their servicemember's orders. A spouse who is a Texas resident following their servicemember to New Mexico can keep Texas as their tax domicile and avoid New Mexico state income tax on their wages.
Guard & Reserve — the SCRA gap
SCRA pay protections apply during federal (Title 10) activation orders. During routine drill weekends and state-only activations, Guard and Reserve members are state residents serving in their home state — SCRA does not protect their drill pay from state income tax. Whether New Mexico exempts that pay is the state-specific question answered above.
Filing watch-outs
- 01The $30K cap was a 2024 phase-in amount — verify the current 2026 cap with NM DoR before filing
- 02NM RPD-41296 for military retirement exemption
Veteran-specific tax benefits
Disabled veteran property tax exemption.
Official authority
https://www.tax.newmexico.gov/ ↗State tax law changes annually. Verify current rules with the New Mexico Department of Revenue before making any tax decision.
New Mexico military tax — common questions
Does New Mexico tax military retirement pay in 2026?
New Mexico partially taxes military retirement pay. Up to $30K of military retirement exempt (2024+ phase-in) — verify current cap with NM DoR.
Does New Mexico tax active-duty military pay?
New Mexico taxes active-duty military pay for state residents. Active-duty pay taxable; combat zone exempt. Under the SCRA, New Mexico can only tax the military pay of service members who are legally domiciled in New Mexico — not those merely stationed there.
Does New Mexico tax National Guard and Reserve drill pay?
New Mexico taxes Guard and Reserve drill pay. Guard and Reserve drill pay is taxable New Mexico income. SCRA protections apply during federal activation but not routine drill.
Is VA disability compensation taxed in New Mexico?
No. VA disability compensation is federally tax-free under 38 U.S.C. § 5301, and no state — including New Mexico — taxes it as income.
If I'm stationed in New Mexico but claim another state, can New Mexico tax my military pay?
No. Under the Servicemembers Civil Relief Act (SCRA), active-duty pay is taxable only by your state of legal domicile, not the state where you are stationed. If your domicile is elsewhere, New Mexico cannot tax your active-duty military pay. Military spouses get the same protection under the MSRRA.
Related tools
Other state guides