How much should I be setting aside for taxes?

New Mexico Mineral Rights Eddy County, NM
1

I’ve been googling this, and the answer google tells me is that 12.5% is what I should be expecting to pay the state of New Mexico on all mineral royalties

Is that more or less correct?

Should I also be setting aside additional amounts for federal taxes? (If so how much?)

Thanks in advance!

2

Those are questions for your accountant. Nobody on this forum knows your personal financial information that determines those amounts.

3

I wasn’t asking for personal financial advice. I was asking if there is a set rate that the state of New Mexico / Fed gov taxes mineral royalties at. From your response I guess you’re saying that there is not.

4

By default New Mexico State income taxes should be withheld from your royalty checks. Federal taxes are only withheld if you do not provide a W9 to the operator / purchased. I’m not familiar with the actual rate in NM, and your federal rate will completely depend upon your income, status, exemptions, etc. For most people, they need to set aside some funds to pay federal taxes on royalty income. I almost never get a refund, because my royalty income causes me to pay in at the end of the year since income taxes were not withheld by the operator.

In New Mexico, the only way to prevent the operator from withholding state income tax is to submit a form to them in writing requesting the withholding to be exempt. It is a state form that can be found online pretty easy if you search.

1 Like
5

Thanks Kitchen, I actually did not know that about the state withholding taxes! that will make things easier if it is true in my case.

The operator did get my w9, so I guess they are not withholding federal taxes. Honestly it would be easier for me if they did. I would choose that option if I could. I would prefer all taxes to be withheld, so I don’t have to deal with it.

6

Many operator withhold NM state income taxes at the highest tax rate on the gross revenues, not on the net revenues after expenses. So you would be due a refund upon filing an out-of-NM state income tax return. NM requires that you attach your 1099 forms to the return as evidence of the taxes withheld.

7

Ok so according to cimarex, they do NOT withhold state taxes if you live IN the state, but they do if you live out if the state. I live in Nm and my brother lives in Co. His check was $200 less than mine, and according to Cimarex, that’s because:

That is New Mexico State Withholding. Since you do not reside in the state of New Mexico where the well is located, by law we have to withhold state taxes. You will have to file state taxes in 2021 in order to get the money back. The state withholding amount will appear on the 1099 when those are sent out at the end of January 2021. Since your sister resides in NM no state taxes are withheld.

This also indicates that there IS a standard set tax that NM has on mineral royalties, regardless of total income (since they obviously have no idea what my brother’s income is). This was actually my original question. From what I can tell, it’s about 5.75 %

8

This topic was automatically closed after 90 days. New replies are no longer allowed.