Summary:

 Senate Bill 298 (SB 298) exempts income earned by health care practitioners from state income tax for ten years. Eligible practitioners include a broad range of licensed medical professionals who practice full-time in New Mexico. This exemption applies to taxable years beginning on or after January 1, 2025, and will expire for taxable years beginning on or after January 1, 2035. 

Legislation Overview:

 Senate Bill 298 (SB 298) seeks to encourage the retention and attraction of health care practitioners in New Mexico by exempting their income from state taxation for a ten-year period. Eligible health care practitioners include chiropractic physicians, dentists, dental hygienists, doctors of oriental medicine, optometrists, osteopathic physicians, physical therapists, physicians, physician assistants, podiatric physicians, and psychologists. To qualify for the exemption, practitioners must be New Mexico residents and must practice full-time within their licensed scope. The bill specifies that the exemption will be included in the Tax Expenditure Budget to track its fiscal impact. SB 298 applies to taxable years beginning on or after January 1, 2025, and the exemption will remain in effect until January 1, 2035.

Implications  
SB 298 will have a substantial fiscal impact by eliminating state income tax revenue from eligible health care practitioners for ten years. The total fiscal loss will depend on the number of practitioners who qualify and claim the exemption. This policy could create an incentive for practitioners to relocate to or remain in New Mexico, potentially addressing physician shortages, particularly in rural and underserved areas. However, the exemption may also create inequities among taxpayers by granting a tax advantage to one professional group. Administrative costs will be incurred by the Taxation and Revenue Department to track compliance and ensure proper reporting of exempt income. The bill’s inclusion in the Tax Expenditure Budget will allow for ongoing assessment of its financial impact. 

Current Law:

 Currently, no income tax exemption exists specifically for health care practitioners in New Mexico, however, the state currently offers the Rural Health Care Practitioner Tax Credit, which provides a tax credit to eligible health care practitioners practicing in rural areas.

Health care professionals are subject to the standard state income tax rates under the Income Tax Act. Certain loan repayment programs and financial incentives are available for medical professionals through the Higher Education Department, but these programs do not provide an outright exemption from income tax.