Updated February 12, 2026
For the 2025 tax year, it’s important to exercise tax planning opportunities wherever they can be found. With New Mexico’s shifts over recent years in how pass-through entities (PTE) file taxes, it’s important to ensure that you’re up-to-speed on the pass-through entity tax (PTET) provision which allows partnerships, S Corporations and Limited Liability Companies (LLCs) taxed as partnerships or S Corporations to elect to pay their own entity-level New Mexico income tax liability.
Impact of H.R. 1 or the One Big Beautiful Bill Act
The passage of H.R. 1 into law (also known as the One Big Beautiful Bill Act) on July 4, 2025, impacts pass-through entities and their owners, who should look to comply with—and capture the benefits from—the changes, extensions and updates it contains. Many provisions, updates, and income phase-outs are retroactive to cover 2025 and many will expire following the 2028 or 2029 tax year.
For 2025, pay special attention to:
- The state and local tax (SALT) itemized deduction cap update
- Bonus deduction being restored to 100% of cost for assets acquired after 1/19/2025
- Research and development (R&D) deductions were restored for 2025, with important election choices.
- New Tips, Overtime and Senior deductions and their AGI phase-outs.
- New NM capital gains rule changes, gutting that deduction
What is PTET?
Pass-through entity tax (PTET) is an income tax that certain entities—specifically certain LLCs, partnerships, and S Corporations—elect to pay, to avoid the $40,000 deduction cap. It is particularly helpful for owners who do not itemize or are subject to the SALT deduction cap.
Note: It is important to know that the $40,000 amount is not universal and is phased down to $10,000 for taxpayers with Modified Adjusted Gross Income (MAGI) over $500,000 (or $250,000 when filed individually or married filing separately).
Initially, the 2017 Tax Cuts and Jobs Act (TCJA) placed a $10,000 limitation on the amount of the deduction for state and local taxes (SALT) of what could be deducted on personal returns, greatly impacting small and mid-sized businesses around the country.
The 2025 deduction cap was revised by H.R. 1 to $40,000 and will increase 1% each year thereafter. This revision is temporary and set to expire and revert back to $10,000 in 2030. The PTE cap was also made permanent by the Act.
To counteract the $40,000 deduction limitation, states— including New Mexico— passed their own legislation to convert what would otherwise be a limited or nondeductible itemized tax deduction into a strong business deduction.
Most states have a form of PTE level tax election that they set up as a workaround to the $10,000/$40,000 state and local tax deduction limitation. These PTE elections remain available and applicable for those who exceed the deduction threshold. The current exceptions are Delaware, North Dakota, and Vermont. Pennsylvania, Washington, D.C., Maine, and Utah have proposed or pending PTET bills. Minnesota’s rules expired with 2025 but are being extended. Oregon’s and Utah’s PTE rules expired with 2025.
State PTET rules vary widely and must be individually understood.
States with Enacted or Proposed Pass-Through Entity (PTE) Level Tax
What is a PTET Election?
New Mexico allows pass-through entities the opportunity to make an annual election that permits owners of these entities to circumvent the $10,000 state and local tax cap while remaining within the guidelines of the Federal law. The New Mexico election is binding on all owners of the electing pass-through entity.
In 2022, under New Mexico’s first PTET law, electing companies paid the tax, and the owners exempted the related income from their New Mexico tax returns. For 2023 and after, New Mexico shifted from an income exemption to a tax credit system where the company pays and deducts the tax, and the owners also report the company income and claim the company’s payment as a credit on their tax return. The PTET laws differ significantly in every state though variations on the credit method that New Mexico now uses is the most common approach.
When are PTET payments due?
While New Mexico currently doesn’t require PTE’s to pay an advanced or quarterly estimated NM PTET, full payment is required on or before the due date of the Federal tax return. Typically, the benefit of the PTET is enhanced if the current year’s tax is paid by December 31 of the tax year.
Unlike many states, New Mexico does not require quarterly estimated PTET payments. Instead, the company makes the election and pays the tax with its New Mexico income tax return. If the return is filed on an extension, the payment is due with the extension.
New Mexico PTE Forms and Filing
Pass-through entities that would most benefit from entity-level filing — LLCs, partnerships, and S-corporations that anticipate paying more than $40,000 in state and local tax to New Mexico, PTEs with owners who do not itemize and PTEs that have complex returns with multiple owners — need to ensure that they designate their election, file their returns, and make payments due according to all requirements as well as within the timeframes that most benefit the owners. Those that have deduction caps of less than $40,000, due to their MAGI, should consider their deduction level when making their decisions and payments.
Please note that all linked forms below are those most recently published by the State of New Mexico.
How does the pass-through entity (PTE) make the election to be taxed directly?
Each PTE makes its election on the New Mexico tax return forms that it files. A section for calculating the entity-level tax is found within each return. These returns may be filed and paid electronically on the New Mexico’s Taxpayer Access Point (TAP) website. Organizations with more than 50 payees are required to file electronically.
PTE Return– New Mexico Pass-Through Entities Tax Return (a.k.a. New Mexico form PTE). Instructions for 2025 PTE Tax Return
S-Corp Return– New Mexico Sub-Chapter S Corporate Income and Franchise Tax Return
PIT-1 Return– New Mexico Personal Income Tax Return
FID-1 Return– New Mexico Fiduciary Income Tax Return
How does the PTE inform its owners of their filing information?
PTEs electing to pay the entity-level tax issue to their owners an Annual Statement to advise them of the election and the tax amount, and to attach to their NM income tax return.
- RPD-41359 – Annual Statement of Pass-Through Entity Withholding (Form 1099-Misc or a pro forma 1099-Misc may also be used if only pass-through entity withholding is being reported.)
This form will document the owner’s portion of the entity’s New Mexico net income, tax withheld, composite income tax paid, and any credit for entity-level tax. This RPD-41359 must be attached to the owner’s New Mexico income tax return.
What PTE forms are needed to make entity payments?
Different PTET remittance vouchers are required depending upon when the payments are submitted. Electronic payments may also be made within New Mexico’s TAP website.
- PTE-PV – Pass-through Entity Tax Return Payment Voucher
- PTE-ES – Pass-through Entity Estimated Payment Voucher
What other PTE forms may be useful?
Some situations may require that additional forms be submitted to New Mexico. These may include an out-of-state owner’s Agreement to pay New Mexico tax; a form for those who receive New Mexico oil and gas proceeds; or a form to request a refund or credit application to a subsequent year that had been withheld from a pass-through entity.
RPD-41353– Owner’s or Remittee’s Agreement to Pay Withholding on Behalf of a PTE or Remitter
RPD-41354– Declaration of Principal Place of Business or Residence in New Mexico
RPD-41373 – Application for Refund of Tax Withheld from Pass-through Entities
RPD-41083 – Affidavit to Obtain Refund of NM Tax due to a Deceased Taxpayer
New Mexico PTE Considerations
The New Mexico Taxation and Revenue Department (TRD) continues to provide guidance on the details of the PTE entity-level taxation process.
A few things to consider:
The 2025 PTET payment is required to be made with the company’s timely filed tax return or extension.
The PTET is an election. It is made on the company’s New Mexico income tax return.
The tax rate is 5.9% of the income apportioned to New Mexico. Apportionable income includes guaranteed payments—except for health insurance.
For 2025, the PTET capital gain deduction changed. PTET taxable income is reduced by up to $2,500 in capital gain that is allocable to each New Mexico owner who is a human or a trust. Or, if greater, 40% of up to $1,000,000 of gain allocable to each New Mexico owner from the sale of a business that is apportioned to New Mexico.
Income and guaranteed payments allocable to governments, Tribes, and 501(c)(3) organizations are excluded.
Note: Individuals, estates, and trusts must add the PTET credit to their income, this eliminates the New Mexico income tax benefit of the deduction. However, the Federal tax savings will make this election worthwhile for many companies and business owners.
With the itemized SALT deduction cap increase to $40,000 and other changes from H.R. 1, along with New Mexico’s capital gains treatment change, it’s important to focus on key opportunities to minimize your tax obligations. We continually monitor pending legislative changes and federal administrative updates. REDW’s trusted tax advisors are ready to help you optimize today’s savings and continue planning for tomorrow.
Practical solutions for complex issues
For many businesses, state and local taxes are the most vulnerable areas in tax liability. Multistate taxation is highly complex, creating challenges as a company expands its multistate footprint.
REDW’s State and Local Tax (SALT) advisors are trusted and proactive in providing specialized expertise for multistate taxes, offering high-value consulting services that help growing businesses unearth tax-savings and achieve compliance in all 50 states.
FAQs – NM PTET
Who needs to file PTET in New Mexico?
Typically, pass-through entities are not subject to tax themselves, rather taxation takes place at the owner’s level. New Mexico permits pass-through entities to make an annual election to choose to pay state income taxes at the entity level, then allocate to each owner the portion of income and tax credit attributable to them.
While not required, this provision provides many owners with a significant benefit over previous filing methods since the enactment of the Tax Cuts and Jobs Act of 2017 and remains beneficial following H.R.1 becoming law in July 2025.
When are PTET payments due?
New Mexico PTET payments are due on or before the PTE’s Federal Tax return due date, generally March 15th. Federal tax return extensions are honored by New Mexico. However, the tax is due on the original due date, not the extended due date.
To accelerate their deductions, both individuals and PTE owners may benefit from paying their New Mexico estimated income tax, property taxes and PTET tax within the tax year, rather than waiting until the payment is required in the subsequent year. Your trusted tax professional can advise you regarding your specific situation.
How do I calculate PTET in New Mexico?
PTE entity-level tax is calculated by adding net income to guaranteed payments, subtracting certain capital gains and certain income allocations that are not subject to the entity-level tax, then multiplying the result by the entity-level tax rate.
What forms do I need for New Mexico PTET?
The PTE entity-level taxation election is made on the PTE’s New Mexico income tax return Form PTE or S-Corp. The PTE issues owners annual statements, providing them with the information needed to complete their tax returns. PTE payment vouchers are used by the entity to remit the monies to New Mexico, or they may be submitted on New Mexico’s Tax Access Point website.
Can I still elect PTET for previous tax years?
- New Mexico PTET elections can still be made for 2025.
- New Mexico PTET elections must be made on a timely filed return, by the later of the original due date or the timely extended due date.
- Except for S Corporations, the New Mexico PTET election does not apply to a Single-owner pass-through entity.
