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| SPONSOR: | Russell | DATE TYPED: | 02/07/00 | HB | 325 | ||
| SHORT TITLE: | Annuity & Pension Income Exemption | SB | |||||
| ANALYST: | Williams | ||||||
| Subsequent
Years Impact |
Recurring
or Non-Rec |
Fund
Affected | ||
| FY00 | FY01 | |||
| $ (17,200.0) | $ (19,000.0) | Recurring | General Fund | |
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates/Conflicts with/Companion to/Relates to
SOURCES OF INFORMATION
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of Bill
The bill authorizes an exemption for state income taxes for annuity or pension income up to $3,000. This includes distributions from pensions, annuities, retirement or profit-sharing plans, individual retirement accounts, insurance contracts and similar income. Provisions apply beginning tax year January 1, 2000.
Significant Issues
FISCAL IMPLICATIONS
TRD estimates potential revenue loss of $17,200.0 in FY01 and $19,000.0 for a full year. The estimate is based on 1992 pension income for New Mexico taxpayers updated with federal income data for 1992 to 1997. The impact on the general fund is expected to grow by approximately $1.5 million per year, assuming conservative growth in pension amounts and the number of pensioners.
Because state income taxes are deductible for federal tax purposes, taxpayers who itemize deductions will receive a net benefit from this exemption of approximately 60 to 85 percent of the decrease in state tax. Federal tax for these taxpayers may increase by $20 to $195 per pensioner tax return.
ADMINISTRATIVE IMPLICATIONS
TRD estimates substantial administrative impact of $40.0 to $60.0 for additional temporary full time employees, revisions to tax forms and instructions and data processing systems.
DISTRIBUTIONAL ISSUES
The exemption is expected to affect about 140,000 tax returns with current liability for an average taxpayer benefit of about $135 per return. The average benefit at the median adjusted gross income level for pensioners of about $100 per return. High income retirees would receive $246 per pensioner and potentially $492 on a married filing joint return.
TRD estimates about 70 percent of the impact results from tax decreases for taxpayers under 65, because those over age 65 already benefit from the existing deduction for taxpayers over 65.
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