New Mexico seniors filing income tax returns may be pleased to learn that they no longer pay state taxes on Social Security income.
The 2022 tax year is the first time since 1990 when the legislature began taxing it, that Social Security income is exempt from New Mexico income tax.
Social Security Taxation for Seniors and Recent Legislation
This tax was enacted as a single line on the preceding-to-last page of a lengthy and complex piece of legislation. It was not scrutinized by the public until the following year when seniors filed their taxes.
After three years of effort, the legislature passed and the governor signed a law exempting all low- and middle-income seniors with incomes up to $100,000 for individuals and $150,000 for couples from paying taxes on their Social Security benefits last year.
Prior to this law, the state taxed the Social Security income of seniors earning as little as $28,500. The reform went into effect for the 2022 tax year, so the savings will be reflected on the tax returns that seniors are currently submitting.
The New Mexico Taxation and Revenue Department estimated that 115,000 of 137,000 New Mexicans who previously paid taxes on their Social Security income, or 84%, are now eligible for the exemption. As a result of this reform, the average New Mexico senior who pays Social Security taxes saves approximately $710 annually.
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New Mexico Low-Income Seniors’ Financial Concerns
Nonetheless, the tax exemption for Social Security income in New Mexico had a significant flaw: The state of New Mexico failed to convince the legislature to include an inflation adjuster. If exemption levels are not indexed for inflation, the value of the exemption will erode over time, and an increasing number of seniors will be subject to the tax.
This is precisely what occurred in 1983 when the federal government began taxing Social Security income. This federal law exempted seniors with annual incomes of less than $25,000, which is equivalent to about $76,000 in current dollars.
For the 55,000 grandparents who are the primary guardians of their grandchildren, the protection of middle- and low-income seniors is of particular importance.
Over 10% of New Mexico’s children are raised by their grandparents, and many of them worry about outliving their savings.
In addition to our state’s natural beauty, affordable cost of living, and abundant cultural and recreational amenities, the tax exemption with inflation adjuster makes New Mexico a more attractive retirement destination for middle-income retirees.
Consider New Mexico commends the legislature and Governor Lujan Grisham for providing this significant tax relief and enhancing the financial security and well-being of New Mexico’s senior citizens and their families.
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