Consider the Facts on Taxing Social Security| Latest News!

Recently, there has been a lot of controversy about the New Mexico income tax that is levied against Social Security benefits.

Considering my professional background (I am a certified public accountant who also receives Social Security benefits),

I believe I can provide vital knowledge and perspective that has been absent in the discussion I have read thus far.

The specifics of federal and state taxation in New Mexico are intricate.

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Nonetheless, it’s important to remember that New Mexico’s tax computation is based on the federal tax return,

but with additional deductions for seniors and low-income individuals beyond those available under the federal tax code.

The fact that the federal tax return has a method for determining how much Social Security is included in income up to a maximum of 85 percent is also beneficial to know.

Social Security

Consider the Facts on Taxing Social Security

For the purpose of determining how the New Mexico tax system impacts taxpayers who receive Social Security benefits, I ran a couple of scenarios through my tax software.

To begin, let us assume that each spouse of a married pair receives the full Social Security income that is available to them.

The maximum benefit amount is currently $50,328 for someone who waits until they are 70 years old before receiving their benefit.

This fictional couple does not have any other taxable sources of income.

As a result, their total combined income is $106,566 dollars. Most people would consider this to be a quite comfortable retirement income, in my opinion.

What portion of this income is subject to taxation in New Mexico? Zero.

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Now, let’s look at a more realistic situation because only a small percentage of the population receives the maximum Social Security payment and has no other source of income.

Imagine that each spouse receives $25,000 in Social Security payments, but that they also have $16,000 in additional taxable retirement benefits, such as a pension or distributions from an IRA, to supplement their income.

The couple’s total gross income is $82,000 per year. Even by most people’s standards, this is still a respectable retirement income.

The government calculation determines that $17,050 in Social Security benefits is included in gross income in this instance.

After deductions, New Mexico’s taxable income from all sources is $18,060, and the state’s tax is $488.

My argument is that middle-income seniors who receive Social Security benefits pay relatively little income tax in New Mexico on the payments they receive.

For lower-income seniors who are completely reliant on Social Security benefits, it is extremely improbable that any of their income will be taxed by the state of New Mexico.

Please take a moment to evaluate the facts before we get all worked up about how terrible it is that New Mexico is taxing the Social Security benefits of low-income seniors.

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