New Mexico is making significant efforts to ease the tax burden on retirees, particularly those who depend on Social Security benefits.

As part of a growing trend in various states, the state has been exploring ways to lower or eliminate taxes on Social Security income to provide financial relief to its senior residents. This article will explore the current taxation of Social Security benefits in New Mexico, recent efforts to change the rules, and what retirees should know moving forward.

Current Taxation of Social Security Benefits in New Mexico

As of 2025, New Mexico taxes Social Security benefits for individuals with a federal adjusted gross income (AGI) over $25,000. For married couples filing jointly, the threshold is $32,000. This means that many retirees with modest incomes are subject to state income taxes on their Social Security benefits. Although the federal government does not tax Social Security benefits for most retirees, New Mexico is one of the states that still imposes a state tax, which can create a financial strain for those relying heavily on these benefits.

Proposed Changes to Social Security Taxation

In 2023, New Mexico lawmakers introduced a bill to eliminate the state income tax on Social Security benefits, aiming to reduce the financial burden on retirees. The goal of this legislation was to make the state a more attractive place for retirees by removing taxes that disproportionately affect fixed-income seniors. Unfortunately, the bill did not pass, and Social Security benefits continue to be subject to state income tax for many residents.

Despite this setback, the issue of taxing Social Security benefits remains on the table, and lawmakers may revisit the proposal in the future. For now, retirees in New Mexico must continue to plan around this taxation when managing their finances.

Recent Developments: Cost-of-Living Adjustments (COLA)

Although the Social Security tax legislation didn’t pass, retirees in New Mexico recently received positive news with the announcement of a 2.5% cost-of-living adjustment (COLA) increase for 2025. This COLA will raise the average monthly retirement benefit by about $47, bringing it to $1,872 per month. While this increase is meant to help seniors keep up with rising living costs, it is somewhat offset by higher Medicare Part B premiums, which are expected to rise to $185 per month in 2025.

What Retirees Need to Know

Though the Social Security tax relief did not come through this time, retirees should stay informed about potential future changes. The state may revisit the issue of tax cuts for Social Security benefits, and retirees need to keep up with legislative changes. It’s also a good idea to consult with a financial advisor to understand how current laws affect their retirement planning and whether they may be impacted by future changes.

New Mexico continues to explore ways to reduce the tax burden on retirees, but Social Security benefits are still subject to state income tax. Retirees should stay informed about any future changes and plan accordingly to make the most of their retirement income.