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New Mexico Could Be Next State to Cut Social Security Taxes

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What You Need to Know

  • A bill under consideration would eliminate the tax for retirees with under $100,000, or couples with under $150,000, in annual income.
  • New Mexico is one of 12 states that levy their own tax on Social Security benefits.
  • The bill must clear the Senate Finance Committee by noon Thursday.

New Mexico may be soon stop taxing Social Security benefits for certain seniors after a compromise was passed by the Senate Tax Committee late last week.

The state is one of 12 that still tax Social Security at different income levels. However, several states that still tax Social Security are making changes on either increasing the age of taxation, phasing out the taxes or eliminating the tax altogether.

The compromise reached last week in New Mexico will remove taxes on Social Security for individuals with incomes up to $100,000 and up to $150,000 for couples filing jointly. The bill, SB5, was passed by the Senate Tax Committee by a 9-1 vote. The House bill, HB163, has identical provisions.

The state’s current tax includes all Social Security benefits in the taxable income base, though the state provides a deduction that reduces the taxability of all retirement income.

If passed, the bill will reduce state revenue just over $84 million a year, according to Fred Nathan, executive director of Think New Mexico, a nonpartisan research group focused on financial issues including financial literacy and pensions.

A co-sponsor of the bill, Sen. Michael Padilla of Albuquerque, told the Las Cruces Sun News that with 49% of New Mexico’s foster children being raised by retired grandparents, the money lost to state coffers would be converted to spendable income for the greater benefit of the economy.

New Mexico’s tax on Social Security has been in effect since 1990. If passed by the legislature and signed by the governor, the change could take effect this tax year.

First, SB5 must be passed by the Senate Finance Committee, whose session ends at noon Thursday. As committee Chair George Munoz’s office told ThinkAdvisor, “it’s a tight schedule.”

Nathan told ThinkAdvisor that he felt “confident” the Senate and House bills will pass and be signed by Gov. Michelle Lujan Grisham, a Democrat, who has been an advocate of dismantling the tax, he said.