SB 56, SB 125 & HB 264 - Armed Services Retirement Pay Tax Sunset
Senators Pope and Burt & Rep H. Garcia
Why VMFC supports
SB 56, SB 125 &, HB 264
In 2023, two more states joined the ranks of the vast majority (37) of states with no income tax or fully exempting military retirement pay from state income tax liability.
29 states have a state income tax, but fully exempt military retirement pay and/or pension income from state income taxes. 8 states have no income tax. Only 1 state, California, fully taxing military retirement income.
In 2022 New Mexico passed a law partially exempting military retirement pay, joining 12 other states that do the same. That law sunsets in 2026, meaning military retirement pay would be fully taxed in New Mexico.
If New Mexico does not lift the sunset clause, it will again be in the bottom two nationwide on this issue. We can’t let that happen.
SB 56 and SB 125 are essentially the same. HB 264 is similar but it does not extend the partial military retirement pay exemption to surviving spouses as the two senate bills do. We support all three bills but prefer the two senate bills for this reason.
In New Mexico, beginning in 2022, up to $10,000 of military retirement pay is not taxed by the state. That amount increased to $20,000 in 2023, and to $30,000 until 2026 when the law sunsets and is no longer in effect.
This year the legislature has an opportunity to lift the sunset and make permanent the military retirement pay tax exemption. This will make New Mexico an even more desirable place for military retirees who bring an unparalleled level of work ethic, specialized training and experience in a variety of career fields.
Most of these retirees are in their 40’s and start second careers or open new businesses that contribute to the tax revenues of the state. Along with their spouses, who are also often licensed experienced professionals in their careers, military retirees contribute to the economy, the workforce, and the social diversity of our state.
Allowing the sunset clause to become effective in 2026 will result in significant instability in the financial security of veterans and military families across the state. Lifting the sunset clause will lower the financial stress on these families and let them know that New Mexico honors their service and values their continued contribution to New Mexico’s workforce and diversifying economy.
For those who have earned a military retirement pension, they have served 20 or more years in assignments around the world, some in combat zones under dangerous conditions, some have experienced injuries or trauma both physical or psychological. Yet they served a full career and retired. They and their families have never had an opportunity to put down roots, and upon retirement they can choose a place that welcomes them and their families and offers stability and security.