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New Mexico has four tax brackets, which for married filing jointly breaks down as (at least in 2019): 1.7% for $0-$8000, 3.2% for $8001-$1600, 4.7% for $1601-2401, and 4.9% for $2401 and above.

I'm new to New Mexico and I have noticed something strange with how tax withholdings are calculated. This is based on how things were in 2019, and extrapolating to 2020 (e.g., assuming the standard deduction increases to match the federal standard deduction). Please let me know why if I am wrong here. Since there are only four tax tiers, four filing situations (single, married filing jointly, married filing singly, and head of household) and no credits, exemptions, or allowances for children/dependents (at least as I understand it, for 2019, I believe this is changing for 2020), it should be straightforward to calculate ahead of time exactly how much someone on a salary will owe in state income tax. Indeed, the state supposedly does so in its form FYI-104 (Form FYI-104 PDF download here), which is the official guide from the taxation and revenue office for employers on how much to withhold. The picture below shows a portion of that document for withholdings on income paid monthly.

New Mexico tax withholding on monthly pay.

Here's what I find funny. For a married filing jointly person with no children and with a monthly paid salary of $7250 ($87000 annually) and no other household income, I would expect the full year's income tax to be based on $62,200 of income (after a $24,800 deduction). This would be a tax of $136 (1.7% * $8000) + $256 (3.2% * $8000) + $376 (4.7% * $8000) + $1872 (4.9% * $38200), or a total of $2640, equivalent to $220 per month.

However, looking at a $7250 monthly salary in the table, we see that a total of $270.60 will get withheld every month, over 20% higher than it should be!

My question is: Why does New Mexico's withholding guide require withholding more money than is needed to actually pay the income tax?

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    Do you have a local (county or city) income tax in New Mexico? – pboss3010 Mar 3 '20 at 13:08
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There might be a missing link to your Partner, most likely the salary and tax will be calculated from your income alone without any knowledge about your Partner.

If your Partner earns a lot, you won't profitate from the reduction as a married person ;) You have to add both salaries first before they can calculate your salary as a couple.

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  • As specified in my example, "no other household income." This is indeed the case in my household. And the calculation I present is based on the table above, which does not take into account additional household income. What you propose is unfortunately not the answer (what a simple answer it would have been!). – NeutronStar Mar 3 '20 at 16:06

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