Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR
Reps. Sena Cortez, Murphy, Montoya, and
Block
/Sen. Block
LAST UPDATED
ORIGINAL DATE 2/20/2025
SHORT TITLE Eliminate Social Security Tax
BILL
NUMBER House Bill 293
ANALYST Gray
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
PIT $0 ($33,600) ($35,9 00) ($38,500) ($41,200) Recurring General Fund
Parentheses ( ) indicate revenue decreases.
*Amounts reflect most recent analysis of this legislation.
Duplicates Senate Bill 184
Sources of Information
LFC Files
Agency Analysis Received From
Aging and Long-Term Services Department (ALTSD)
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of House Bill 293
House Bill 293 (HB293) removes the income cap on social security income that is exempt from
income tax. Currently, social security income is exempt from state income tax for individuals
with income of less than $75 thousand for married filers filing separately, $150 thousand for
heads of household, surviving spouses, and married filers filing jointly, and $100 thousand for
single filers. This bill removes the income caps and exempts all social security income from state
income tax.
The provisions of this bill are applicable to tax years beginning 2025.
FISCAL IMPLICATIONS
This bill creates or expands a tax expenditure. Estimating the cost of tax expenditures is difficult.
Confidentiality requirements surrounding certain taxpayer information create uncertainty, and
analysts must frequently interpret third-party data sources. The statutory criteria for a tax
expenditure may be ambiguous, further complicating the initial cost estimate of the fiscal impact.
Once a tax expenditure has been approved, information constraints continue to create challenges
in tracking the real costs (and benefits) of tax expenditures. House Bill 293 – Page 2
House Bill 293 is estimated to reduce recurring general fund revenues by $33.6 million in FY26.
This estimate was provided by the Taxation and Revenue Department (TRD), which used the
Internal Revenue Service’s Statistics of Income to calculate the average annual social security
income, weighted by the number of New Mexico taxpayers with adjusted gross income over
$150 thousand per year. The agency then used the effective tax rate and estimated the average
tax liability on social security. Lastly, TRD increased the average tax liability by the
Congressional Budget Office’s inflation forecast for FY26 to FY29 as a proxy for cost-of-living
adjustments and grew the number of higher-income eligible taxpayers by their average growth
rate from 2020 to 2021.
Preliminary LFC analysis of this bill and of its duplicate (Senate Bill 184) made an estimate
using similar data but estimated a lower average tax liability and a slower population growth
rate, producing a lower cost. Accordingly, this analysis uses TRD estimated revenue impact.
SIGNIFICANT ISSUES
Currently, there is a “cliff effect” at the income caps where those with incomes just under the cap
do not pay income tax on their social security income, while those with incomes just over the cap
do pay income tax on their social security income. This erodes horizontal equity at income levels
near the exemption caps as those with similar incomes are not treated equally.
TRD analysis provides context of this bill, writing:
In tax year 2023, approximately 137,000 taxpayers claimed the exemption under current
law, a 2.6% increase from tax year 2022, with total tax year 2023 tax relief of $87.6
million, 9.5% over tax year 2022. The current maximum adjusted gross income (AGI) is
applicable to low- and middle-income taxpayers; for individuals the cap is $100,000, for
married joint filers it is $150,000, and for married filing separately it is $75,000. The
average tax savings per taxpayer is $639 under current law. Removing the current cap
and exempting all social security income will benefit high-income individuals who tend
not to depend solely on social security benefits for their income, and who have other
sources of income as well. As noted in the fiscal methodology, the average PIT liability
benefit for these individuals is $1,078 versus the current population average of $639.
Because the legislation benefits only higher-income individuals, it erodes progressivity in
the tax code.
Policymakers may consider many factors when deciding whether to exempt some form of
income for those over 65, including lessening the economic burden on that population and trying
to attract retirees to the state. The provisions of HB293 may have a limited impact on attracting
retirees to the state in part because this exemption is just one among a tapestry of tax policies that
may make New Mexico attractive or unattractive for a retiree. For example, New Mexico’s
property taxes are among the lowest in the nation, but the state has a relatively high sales tax.
Removing the current cap and exempting all social security income will primarily benefit high-
income individuals who do not depend solely on social security benefits for their income, and
who have other sources of income.
House Bill 293 – Page 3
OTHER SUBSTANT IVE ISSUES
In assessing all tax legislation, LFC staff considers whether the proposal is aligned with
committee-adopted tax policy principles. Those five principles:
Adequacy: Revenue should be adequate to fund needed government services.
Efficiency: Tax base should be as broad as possible and avoid excess reliance on one tax.
Equity: Different taxpayers should be treated fairly.
Simplicity: Collection should be simple and easily understood.
Accountability: Preferences should be easy to monitor and evaluate
In addition, staff reviews whether the bill meets principles specific to tax expenditures. Those
policies and how this bill addresses those issues:
Tax Expenditure Policy Principle Met? Comments
Vetted: The proposed new or expanded tax expenditure was vetted
through interim legislative committees, such as LFC and the Revenue
Stabilization and Tax Policy Committee, to review fiscal, legal, and
general policy parameters.
This bill was not
vetted through an
interim committee.
Targeted: The tax expenditure has a clearly stated purpose, long-term
goals, and measurable annual targets designed to mark progress toward
the
goals.
There is no stated
purpose, goal, or
target.
Clearly stated purpose
Long-term goals
Measurable targets
Transparent: The tax expenditure requires at least annual reporting by
the recipients, the Taxation and Revenue Department, and other relevant
agencies
The expenditure will
be included in the
Tax Expenditure
Report.
Accountable: The required reporting allows for analysis by members of
the public to determine progress toward annual targets and determination
of effectiveness and efficiency. The tax expenditure is set to expire unless
legislative action is taken to review the tax expenditure and extend the
expiration date.
There is no
expiration date.
Public analysis
Expiration date
Effective: The tax expenditure fulfills the stated purpose. If the tax
expenditure is designed to alter behavior – for example, economic
development incentives intended to increase economic growth – there are
indicators the recipients would not have performed the desired actions
“but for” the existence of the tax expenditure.
There are no stated
goals or targets by
which to measure
effectiveness.
Fulfills stated purpose ?
Passes “but for” test ?
Efficient: The tax expenditure is the most cost-effective way to achieve
the desired results.
?
Key: Met Not Met ? Unclear
BG/hj/SR