SANTA FE — New Mexico remains one of a handful of states still taxing tips, overtime pay and Social Security benefits a year after President Donald Trump signed sweeping federal tax relief into law, and state lawmakers had a chance to change that this year before the legislation that would have done it died in committee.
The America First Policy Institute’s New Mexico chapter renewed criticism of the state’s tax posture Monday, with Executive Director Vincent Torres arguing that Santa Fe’s refusal to conform to the federal Working Families Tax Cuts Act, combined with the state’s decision not to opt into the new Education Freedom Tax Credit, has left New Mexico workers, seniors and families paying more than they need to.
“New Mexicans who earn tips, work overtime, or depend on Social Security shouldn’t pay higher taxes simply because Santa Fe refuses to align with the federal tax relief enacted under the Working Families Tax Cuts Act,” Torres said in a statement. “One full year after President Trump signed this relief into law, lawmakers had a bill on the table to deliver it, and they let it die.”
“With record revenues thanks to oil and gas, and historic budget reserves, our state has every opportunity to let hardworking families keep more of what they earn and expand educational opportunities through the Education Freedom Tax Credit,” Torres said. “There is no fiscal excuse — only a political one. It’s time for New Mexico to put our taxpayers, workers, seniors, and children first.”
The Bill That Died
Torres’ statement points to a specific piece of legislation. House Bill 264, sponsored by five House Republicans — Reps. Mark Duncan of Kirtland, Mark Murphy, Jonathan Henry, Rebecca Dow and William Hall — would have created state income tax deductions mirroring the new federal breaks on tips and overtime pay, along with a deduction for Social Security income “deductible pursuant to federal law.” The bill also would have repealed the state’s Working Families Tax Credit in favor of a new earned income tax credit and created a foster parent and guardian tax credit.
HB264 never received a committee hearing. It was referred to the House Health and Human Services and House Taxation and Revenue committees on Jan. 30, then marked “action postponed indefinitely” on Feb. 2 — a procedural move that ended the bill for the session.
Duncan tried again days later, offering a floor amendment to House Bill 291, the Legislature’s annual tax code cleanup bill, containing similar tips, overtime and Social Security provisions. The House’s Democratic majority voted it down Feb. 12.
“House Democrats love to talk about helping working families, but when it comes time to actually vote for real relief, they always say no,” Duncan said at the time. “They protected big government spending and bureaucracy at the expense of everyday people.”
HB291 itself passed the House 59-8 and was signed into law by Gov. Michelle Lujan Grisham on Feb. 18, but its scope was narrower — closing loopholes in the film tax credit and technology jobs credit and clarifying tobacco tax provisions, among other cleanup items — not the broader conformity Republicans sought.
Where New Mexico Stands Nationally
A New York Post analysis published Monday named New Mexico among the states doing the least to align with the federal tax law Trump signed July 4, 2025. The Post identified New Mexico, Connecticut, Minnesota, Rhode Island and Vermont as the states taxing every major source of income covered by the law — tips, overtime and Social Security — while also declining to participate in the Education Freedom Tax Credit.
The New Mexico Restaurant Association told the Post that continuing to tax tips “is out of step with the needs of service workers, and underscores a broader opportunity for the state to reconsider income tax relief for all working residents.”
Republican Party of New Mexico interim chairman Mike Nelson was more pointed, telling the Post that “under Democrat leadership, New Mexico is one of the most poorly managed states in the country, with one of the worst taxpayer returns on investment in the nation, all while state spending and taxes continue to rise.” Nelson said the party’s decisions have “made it more difficult for those who need [the tax breaks] most.”
The Social Security Tax, in Context
New Mexico’s Social Security tax picture is narrower than a blanket “still taxing” framing suggests. The state exempted Social Security benefits from state income tax in 2022 for single filers with adjusted gross income under $100,000 and joint filers under $150,000, a threshold that remains in state law. Benefits above those thresholds are still taxed.
A separate bill this session, Senate Bill 156, sponsored by Sen. Pete Campos, D-Las Vegas, would have removed the income cap entirely, exempting Social Security income for all New Mexicans regardless of earnings. It also died — marked “action postponed indefinitely” on Jan. 27 — after the Legislative Finance Committee flagged concerns about the bill’s fiscal impact and recommended it either be more narrowly targeted or held for further study.
Education Freedom Tax Credit
The federal Education Freedom Tax Credit, created under the same law, lets taxpayers claim a federal credit for donations to scholarship-granting organizations, but only in states that formally opt in. Lujan Grisham said in August 2025 she would not opt New Mexico into the program, one of three Democratic governors — along with Hawaii’s Josh Green and Oregon’s Tina Kotek — who staked out that position early. As of this month, 31 states have opted in or signaled they will. New Mexico has not.
