Does NM Tax Social Security Benefits?
Understand New Mexico's taxation of Social Security benefits. Learn how state provisions influence your taxable income.
Social Security benefits are a significant income source for many retirees. While the federal government taxes a portion of these benefits, state-level taxation varies widely. Some states fully exempt Social Security benefits from income tax, while others include them as taxable income. New Mexico is one of the states that can tax Social Security benefits, though it also offers specific provisions that often reduce or eliminate this tax burden for many individuals.
New Mexico’s Taxation of Social Security
New Mexico generally includes a portion of Social Security benefits as taxable income in its state income tax calculation. The amount of Social Security benefits considered taxable at the state level often aligns with the amount taxed at the federal level. However, New Mexico then applies its own specific rules and potential adjustments to this amount. These state-specific rules, including income limitations and deductions, can significantly alter the final state tax liability on Social Security benefits for residents.
Exemptions and Deductions for Social Security Benefits
New Mexico provides specific exemptions and deductions that can reduce or eliminate the state income tax on Social Security benefits for many residents. For single filers, Social Security benefits are tax-exempt if their income is under $100,000. Married couples filing jointly, heads of household, or surviving spouses can also exempt their Social Security benefits if their income is under $150,000. Married couples filing separately have an income threshold of $75,000 for their Social Security benefits to be tax-exempt. These income thresholds are generous compared to some other states that tax Social Security benefits. This means that a large number of retirees in New Mexico will not pay state income tax on their Social Security benefits, despite the general rule that they are taxable.
In addition to these income-based exemptions, taxpayers aged 65 and older may be eligible for a deduction of up to $8,000 on their retirement income, which can include Social Security benefits, pensions, and retirement account income. For seniors, the adjusted gross income (AGI) limits to qualify for this $8,000 exemption are $28,500 for single filers and $51,000 for married filers. If retirement income exceeds the deduction amount, the excess is considered taxable income.
For those under age 65, a smaller deduction of $2,500 is available, with slightly higher income limits of $36,667 for single filers and $55,000 for married filers. Individuals who reach 100 years of age also receive a complete exemption from state income taxes on all income. These provisions aim to make New Mexico more tax-friendly for retirees and reduce their overall state tax burden.
Reporting Social Security Benefits on Your NM Tax Return
When filing a New Mexico state income tax return, taxpayers will need to report their Social Security benefits. The information required for this reporting typically comes from federal tax documents, such as Form SSA-1099, Social Security Benefit Statement, and federal Form 1040, U.S. Individual Income Tax Return. The amount of Social Security benefits that is federally taxed, as determined on Form 1040, serves as the starting point for state calculations.
Taxpayers then apply the New Mexico-specific exemptions and deductions to this amount. Instructions for claiming the Social Security exemption are included with the New Mexico Personal Income Tax instructions, which guide taxpayers on the appropriate lines or forms for making these adjustments. These instructions will detail where to enter the taxable portion of Social Security benefits and where to claim any applicable deductions or exemptions to arrive at the final taxable income for state purposes.