State guide · New Mexico · 2026 rules
S corporation in New Mexico: what the election changes
New Mexico does not tax an S corporation’s income, but the election adds a $50 franchise tax each year. Unemployment tax on your salary is the other change.
Choose a state and enter your profit and salary to see the comparison.
A $50 franchise tax starts with the election
A single-member LLC that stays disregarded, or a sole proprietorship, owes no New Mexico franchise tax. An LLC that files as a corporation for federal tax owes the flat $50 corporate franchise tax every year, including short years.
The income itself still passes through to you, as it does today. New Mexico follows the federal return: the S corporation files Form S-Corp, which carries the franchise tax, and there is no separate state election form.
Payroll taxes on your salary
Unemployment insurance: a new employer pays its industry’s average rate or 1%, whichever is higher (1.00% to 1.28% in 2026), on the first $34,800 of wages. Professional services pay 1.00%. The state’s rule counts corporate officers paid wages as employees.
Workers’ compensation coverage, and the quarterly fee that comes with it, is required only at three or more workers, or at any size for a licensed construction business. A one-person business outside construction pays the fee only if it chooses coverage.
The optional pass-through entity tax
A one-owner S corporation can elect each year to pay tax at the entity level, at 5.9%, by completing that section of Form S-Corp. You get a credit for the tax, reported to you on Form RPD-41359. The calculator leaves it out.
Worked examples
A single-member LLC owner, single filer, 22% federal bracket, default payroll and return costs. The figure is total tax and added costs as an S corporation compared with staying as you are.
| Profit / salary | Statewide |
|---|---|
| $80,000 / $45,000 | $607 lower |
| $120,000 / $60,000 | $3,008 lower |
| $200,000 / $90,000 | $7,789 lower |
Starting payroll in New Mexico
Register for state withholding with the New Mexico Taxation and Revenue Department through TAP, and for unemployment insurance with the New Mexico Department of Workforce Solutions.
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Sources
- NM Taxation and Revenue Department, Pass-Through Entity
- NM TRD, Corporate Income & Franchise Tax Overview
- 3.15.100.8(B) NMAC (Limited liability companies)
- NMSA 1978 sec. 7-2A-5.1 (TRD compilation of the Corporate Income and Franchise Tax Act, rev. March 2021)
- TRD, 2025 Instructions for Form S-Corp, Franchise Tax
- NM Department of Workforce Solutions, UI Tax Information
- NM DWS, How UI Tax Rates Are Calculated
- 11.3.400.7(Q) NMAC (Department of Workforce Solutions tax rule)
- NM TRD, Withholding Tax and Workers Compensation (Section 52-5-19 NMSA 1978)
- NM Workers’ Compensation Administration, FAQs
Federal figures: IRS Publication 15 (2026), Schedule SE and Form 2553 instructions. Every figure was read on an official page and checked a second time. Checked October 24, 2026. How we check facts.