Download this fact sheet (updated Aug. 2021; 2 pages; pdf)
Download the original fact sheet (Feb. 2021; 2 pages; pdf)

Proposals to exempt Social Security income from state income tax would not benefit those New Mexicans who need relief the most, are extremely costly, and are solutions in search of a problem.

Not Targeted

Half of all seniors – those with low incomes (up to $25,000 for individuals or $32,000 for couples) – already pay no income taxes on their Social Security benefits. And the rest pay taxes on only a portion. [1]

A complete state exemption would almost entirely benefit higher-income seniors:

  • 87% of the value would go to those making more than $50,000.
    • That’s higher than the state’s median household income.
  • 66% of the value would go to those making more than $75,000.[2]
    • That’s the top 20% of taxpayers.

Not Necessary

We have tax breaks targeted to low-income seniors:

  • A state tax exemption specifically for seniors with retirement income is worth up to $8,000.
  • Low-income seniors can take another exemption worth $2,500.

Seniors already got a big tax break during the 2021 legislative session:

  • In 2021, lawmakers expanded eligibility for the Low-Income Comprehensive Tax Rebate (LICTR) and tripled the amount of the rebate. Those changes benefit 56,000 current and newly eligible seniors throughout our state.
  • LICTR will also be indexed to inflation moving forward – meaning it won’t lose its value over time like it had since it was last updated more than 20 years ago.
  • LICTR is a much more effective way to help low-income seniors, because it already gives special preference to seniors by allowing them to claim two extra exemptions, which means they get a much bigger rebate.

New Mexico taxes only about one-third of Social Security income:[3]

  • No taxes are paid on any Social Security income by low-income seniors.
  • Income taxes are only paid on 50% of Social Security income for many seniors (individuals earning $25,000-$34,000 or couples earning
  • Income taxes are paid on 85% of Social Security income only by higher-income seniors.
  • The remaining 15% is exempt from federal and state taxation because that is the only portion beneficiaries have already paid taxes on.
  • Supplemental Security Income (SSI) is already never taxable.

There’s no need to lure seniors here – our senior population is already booming:

  • Seniors are, by far, the fastest-growing age group in New Mexico:
    • The growth of our over-65 population has outpaced the rest of the nation, and we’re projected to have the third highest share of seniors of any state.
    • Our senior population grew by nearly 40% over the last decade.[4]
    • Seniors are drawn here by the great weather and low cost of living.

Meanwhile, younger New Mexicans are leaving for better job opportunities:

  • We’d be better off investing that money in the kinds of services that will grow the well-paying jobs that will allow our younger residents to stay.

New Mexico’s seniors are better off financially than much of the population:

  • While 14% of seniors live in poverty:
    • 18% of the total population lives in poverty
    • 25% of all children live in poverty
    • 29% of young children live in poverty[5]

Not Cheap

Exempting all Social Security income from taxes would be very expensive – costing as much as $100 million:

What could we do with that $100 million?

  • $45 million could provide 890 teachers for K-12 schools; plus
  • $24 million could provide 320 registered nurses; plus
  • $12 million could provide 6,000 College Affordability Fund scholarships; plus
  • $11 million could provide 160 police officers; plus
  • $6 million could provide child care assistance for 830 children.

Tax cuts like this narrow our revenue streams and make us even more reliant on revenue from the boom-or-bust oil and gas industry.

We are Not Alone

  • Like most states, New Mexico’s income tax law follows federal income tax law except, in this case, we exempt a much larger share of Social Security income from taxes.
  • 12 other states tax Social Security income: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Rhode Island, Vermont, Utah, and West Virginia.

[*]That only a portion of Social Security income is taxed is an important point. For filers in this income category, this provision means that a married couple with income only from Social Security pays no tax unless those benefits exceed $64,000. A couple with $10,000 in other income pays no tax on Social Security unless their benefits exceed $44,000. For a single filer, the stated threshold for taxation of Social Security is $25,000, but since only one-half of the Social Security income is counted, a taxpayer with only Social Security income pays no tax unless the benefits exceed $50,000.

[1] “Effect of Taxing Social Security Benefits by income Class Estimated for Tax Year 2014,” Congressional Budget Office
[2] IRS 2017 Statistics of Income
[3] NMVC analysis of IRS 2017 Statistics of Income and Social Security Administration, Master Beneficiary Record, 100 percent data; and U.S. Postal Service geographic data; and December 2019 testimony of Jim O’Neill, former Tax Policy Director, NM Taxation and Revenue Department
[4] LFC analysis of U.S. Census Bureau data
[5] 2019 American Community Survey, pre-COVID estimates