NM
Does New Mexico tax tips and overtime?
The federal deduction and the New Mexico deduction are separate questions. Here is where New Mexico actually lands, and why.
How New Mexico builds its tax base
New Mexico starts from your federal adjusted gross income. Both deductions are below-the-line — they reduce federal taxable income but leave AGI untouched — so neither reaches this state's return automatically. Anything you get here had to be legislated separately.
Tips in New Mexico
Still taxedThe 2025 Form PIT-1 begins at line 9, "FEDERAL ADJUSTED GROSS INCOME (from federal Form 1040 or 1040SR, line 11)," and reaches New Mexico taxable income (line 17) by subtracting only line 12, the "Federal standard or itemized deduction amount (from federal Form 1040, line 12)," plus NM-specific items on lines 13-15. The Schedule 1-A total sits on Form 1040 line 13b and is never picked up, so the §224 tip deduction does not reduce New Mexico taxable income. Confirmed by absence: the 2025 PIT-ADJ (which carries every NM addition, deduction and exemption feeding PIT-1 lines 11 and 15) contains no tips line. HB 264 (2026 Regular Session) would have created a New Mexico deduction for qualified tips for tax years beginning on or after 1/1/2026, but action on it was postponed indefinitely on 2/19/2026 and it died.
Source: New Mexico Taxation & Revenue Department, 2025 Form PIT-1 (lines 9-17) and Instructions for 2025 PIT-ADJ; NM HB 264 (2026) — action postponed indefinitely · last reviewed
Overtime in New Mexico
Still taxedIdentical mechanism — PIT-1 subtracts the Form 1040 line 12 standard/itemized deduction only, not the Schedule 1-A (line 13b) additional deductions, so the §225 overtime deduction never reaches line 17. New Mexico's only enacted OBBBA response, SB 151 (Ch. 69, 2026, signed 3/11/2026), decoupled corporate income tax provisions (IRC §§951A, 168(k), 168(n), 163(j)(2)) and made no personal income tax change for tips or overtime, per TRD's own 2026 Legislative Summary. HB 264's proposed qualified-overtime deduction died in committee on 2/19/2026.
Source: New Mexico Taxation & Revenue Department, LS-2026 Legislative Summary (rev. 04/13/2026), "Income Taxes — Corporate Income Tax Changes, SB-151"; 2025 Form PIT-1 · last reviewed
Whatever your state does, your payroll taxes do not change
Both deductions reduce income tax only. Social Security and Medicare are still charged on the same wages, in every state.