2026 · New Mexico
New Mexico severance pay tax
Federal 22% plus New Mexico's 5.9% supplemental rate. But neither is your real tax rate. Here's the real number.
Counts toward the $184,500 Social Security cap.
Wages, new job, spouse, sets your real tax rate.
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New Mexico layoff at a glance
| State tax on severance | Flat 5.9% supplemental withholding |
| State income tax | Graduated, up to 5.9% |
| Unemployment weekly max | $624 for up to 26 weeks |
| Unemployment taxed by New Mexico? | Yes |
How New Mexico withholds on severance
New Mexico withholds a flat 5.9% on supplemental wages like severance. On top of that, the federal government withholds a flat 22% (37% over $1 million) and FICA, 6.2% Social Security up to the $184,500 wage base plus 1.45% Medicare.
New Mexico taxes income on a graduated scale topping out at 5.9%, so a large severance can be pushed into that top rate. If you also claim unemployment, New Mexico pays up to $624 a week for up to 26 weeks, and taxes it on the state return. That's the New Mexico layoff picture in one place, the severance tax here, the unemployment on its own New Mexico page.
Worked example: $40,000 severance in New Mexico
A single filer, $40,000 severance paid separately, with $60,000 of other 2026 income:
| Federal withholding (22%) | −$8,800 |
| FICA (Social Security + Medicare) | −$3,060 |
| New Mexico withholding | −$2,360 |
| Net check | $25,780 |
| What it actually costs in tax | $13,170 |
Over-withheld by about $1,050, expect roughly that back as a refund at filing. The withholding is a fixed rate; your actual tax is your marginal rate on the severance stacked on your other income.
Stacking New Mexico unemployment on top
New Mexico sizes your weekly check off your highest-earning quarter, up to $624 a week, mid-pack nationally (23th of 51). It adds $25 per dependent on top. Duration 14-26; base cap $624, up to $674 with 2 dependents.
| Weekly benefit range | $116 - $624 |
| How the amount is set | Off your highest-earning quarter |
| Maximum duration | 26 weeks (14-26; base cap $624, up to $674 with 2 dependents) |
| Waiting week | Yes, one unpaid week |
| Dependent allowance | $25 per dependent |
| Taxed by New Mexico | Yes |
Stacked together, that $40,000 severance nets about $25,780 and New Mexico's unemployment can add up to $16,224 over 26 weeks, about 11 months of a $4,000 budget before you need a paycheck. File through New Mexico Department of Workforce Solutions; nail down the exact figure in the runway calculator.
Questions about New Mexico severance tax
Is severance taxed higher in New Mexico?
No. It's withheld at a flat 22% federally and 5.9% by New Mexico, but it's taxed as ordinary income at your normal rates. You settle up at filing.
Does New Mexico tax my severance?
Yes, New Mexico taxes severance as wages. New Mexico withholds a flat 5.9% on supplemental wages like severance.
Will I get a refund or owe more?
It depends on your bracket. The flat 22% over-withholds for lower earners (refund) and under-withholds for those in the 32 to 37% brackets (set aside the difference). Enter your numbers above to see which way it goes for you.
Your New Mexico layoff toolkit
- New Mexico unemployment benefits weekly amount and duration
- Runway calculator how long your money lasts
- New Mexico paycheck calculator take-home at your next job
- New Mexico 1099 tax if you go freelance
An estimate for the 2026 tax year. State supplemental figures from the verified dataset, last verified 2026-07-24. Nothing you enter is stored. Not tax advice.