New Mexico Research and Development Credit

At a glance

• Jurisdiction: New Mexico (NM)
• Credit name: Technology Jobs and Research and Development Tax Credit (NMSA 1978, Chapter 7, Article 9F), made up of a basic credit and an additional credit
• Administering agency: New Mexico Taxation and Revenue Department (TRD), which approves applications and allows claims. The Economic Development Department (EDD) promotes the program.
• Rate(s) and base: Not incremental; based on qualified expenditures at a qualified facility in New Mexico.
  • Basic credit: 5% of qualified expenditures (10% for a facility in rural New Mexico).
  • Additional credit: a further 5% (10% rural), available only if annual payroll at the qualified facility rises by at least $75,000 over base payroll for every $1 million of qualified expenditures claimed.
• Refundable? Only for a qualified research and development small business: one with 50 or fewer employees, no more than $5 million of qualified expenditures, and no more than 50% ownership by another business. For that business, the part of the additional credit that exceeds income tax is refunded at 100% if qualified expenditures are under $3 million, two-thirds if $3 million to under $4 million, and one-third if $4 million to $5 million.
• Transferable? No.
• Carryforward: Unused approved basic and additional credits (and any excess not refunded) may be claimed for up to 3 years from the date of the original claim.
• Annual cap / proration: No statewide cap. Starting July 1, 2026, wages counted for any single employee are capped at $500,000.
• Pre-approval / application and deadline: Required. Apply to TRD on Form RPD-41385 within one year after the end of the taxable year (reporting period) in which the qualified expenditure was made. Credits that have not been approved cannot be claimed, and applications filed late are forfeited.
• Forms:
  • RPD-41385: Application for Technology Jobs and Research and Development Tax Credit.
  • RPD-41386: Technology Jobs and Research and Development Tax Credit Claim Form, used to claim approved credits.
  • Approved basic credits are claimed against gross receipts, compensating or withholding tax through the CRS return. Approved additional credits are claimed on the personal or corporate income tax return.
• Sunset / recent changes: No sunset. HB 291 (Laws 2026, Chapter 31), effective July 1, 2026, requires that qualified expenditures be essential to conducting qualified research and caps per-employee wages at $500,000.

What it is

New Mexico gives a credit for qualified research spending at a qualified facility in the state. The basic credit offsets gross receipts, compensating and withholding taxes. The additional credit offsets personal or corporate income tax, and it is available only if the business grows payroll. TRD must approve each credit before it can be used.

Who can claim it

• Taxpayers that make qualified expenditures for qualified research at a qualified facility in New Mexico.
• The additional credit requires the payroll-increase test: at least $75,000 of added annual payroll at the facility, compared with base payroll (prior-year wages adjusted for inflation), for every $1 million of qualified expenditures claimed.
• Small-business refunds apply only to qualified research and development small businesses as defined above.

How it is calculated

1. Total qualified expenditures at the qualified facility for the taxable year. From July 1, 2026, each expenditure must be essential to conducting qualified research, and no more than $500,000 of wages per employee counts.
2. Basic credit: 5% (10% rural) of qualified expenditures. Apply it to gross receipts tax (excluding local option gross receipts taxes), compensating tax and withholding tax.
3. Additional credit: 5% (10% rural) of qualified expenditures if the payroll test is met. Apply it to personal or corporate income tax. It generally cannot exceed the income tax due for the year, except for small-business refunds.
4. Small-business refund: the excess of the additional credit over income tax is refunded at 100%, two-thirds or one-third depending on total qualified expenditures (under $3 million; $3 million to under $4 million; $4 million to $5 million).
5. Carryforward: unused approved credits may be claimed for up to 3 years from the date of the original claim.
6. Married filing separately: each spouse may claim only half of the credit that would be allowed on a joint return.

How to claim it

1. Within one year after the end of the taxable year in which the expenditures were made, file Form RPD-41385 with TRD. Attach a schedule of qualified expenditures and, for the additional credit, payroll data.
2. After approval, claim the credit with Form RPD-41386:
   • basic credit against gross receipts, compensating or withholding tax on the CRS return
   • additional credit on the PIT or CIT return
3. Keep records showing that expenditures were made at the qualified facility for qualified research.

Recent changes

• HB 291 (Laws 2026, Chapter 31), signed March 4, 2026, credit changes effective July 1, 2026: qualified expenditures must be essential for conducting qualified research, and wages per employee are capped at $500,000. In the Legislative Finance Committee's fiscal impact report, TRD's analysis states that the change also ties eligible wages to research conducted in New Mexico at a qualified facility. A proposal to adopt the IRC §41(d) definition of qualified research was removed by the House Taxation and Revenue Committee, so New Mexico keeps its own definition. The credit changes are in Section 11 of HB 291, which took effect July 1, 2026.
• Not enacted: HB 27 and SB 97 (2026) would have extended the carryforward to 10 years, made credits transferable, added property used with industrial revenue bond (IRB) projects, and excluded national laboratories. Neither bill was enacted.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between New Mexico and other locations, how New Mexico amounts reconcile to federal Form 6765, the New Mexico credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to New Mexico tax.

• Was Form RPD-41385 filed within one year after the end of the taxable year? Can you show the approval?
• Which facility is the qualified facility, and is it in rural New Mexico (if you claimed the 10% rate)?
• How does each expenditure meet the definition of a qualified expenditure? From July 2026, is each expenditure essential to qualified research, and does any employee's wage exceed $500,000?
• For the additional credit: how were base payroll and the payroll increase computed, and does the increase reach $75,000 per $1 million claimed?
• For refunds: do employee count, qualified expenditures and ownership meet the small-business definition?
• Were basic credits applied only against gross receipts, compensating and withholding tax, and additional credits only against income tax?

Common weak spots

• Late applications. The one-year deadline is strict.
• Treating the basic credit as refundable. Only the additional credit is refundable, and only for qualified small businesses.
• Payroll-test calculations that do not adjust base payroll for inflation or that count wages from outside the facility.
• Claiming carryforwards more than 3 years after the original claim.
• Counting expenditures that are not essential to the research, or wages above the $500,000 cap after July 1, 2026.

Next steps

• Run a mock audit for New Mexico
• Official source: New Mexico Economic Development Department, Technology Jobs and Research and Development Tax Credit (opens in a new tab)
• Run the eligibility checker
• Book a scoping call with Swanson Reed (opens Swanson Reed's booking calendar in a new tab)
• Contact us: +1 (469) 206-4335 or hello@creditarmor.ai

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.