Was Benny Nevarez limited to the New Mexico income tax withheld from his wages, or did he still owe the additional $282 shown on his 2000 return?

Plain-English summary

Benny Nevarez remained liable for the $282 of New Mexico personal income tax shown on his own 2000 return, even though his employer had already withheld tax from his wages. Withholding was a credit against total liability, not a ceiling on the amount an employee could owe.

As Nevarez's salary increased, his New Mexico income-tax liability sometimes exceeded his wage withholding. He asked the Department how to avoid a year-end balance and followed an employee's advice to reduce the exemptions claimed on his W-4. That adjustment produced refunds for 1997 and 1998.

For 2000, however, his return still showed $282 due beyond the withholding reported on his W-2. He filed the return without paying the balance, and the Department assessed the $282 plus penalty and interest.

Withholding was only a credit

Section 7-2-3 imposed New Mexico personal income tax on the net income of every resident individual. Section 7-2-12 placed responsibility for reporting that income on the taxpayer.

The Withholding Tax Act required employers to withhold from wages, but Section 7-3-9 treated the amount withheld as a credit against the employee's state income-tax liability. Nothing in the withholding or income-tax statutes shifted the employee's ultimate liability to the employer or discharged tax exceeding the credit.

Insufficient withholding could require additional payments

Section 7-2-12.2 expressly contemplated that taxpayers subject to withholding might still need to make estimated payments when expected withholding would not cover projected liability.

The fact that Nevarez had adjusted his W-4 and received earlier refunds therefore did not guarantee that later withholding would equal the tax calculated on his return.

Disagreement with the tax rate was not a protest defense

Nevarez conceded that the tax shown on his return and the Department's assessment accurately reflected the liability under New Mexico law. His protest rested on his view that the rates were too high and unfair to working people.

The hearing officer explained that changing the tax rate was a matter for the Legislature. The administrative proceeding could decide only whether the assessment was supported by existing law, and it was.

Result: protest DENIED. Nevarez owed $282 of 2000 personal income tax, plus penalty and interest.

What this means for you

Employees reviewing paycheck withholding

Compare projected annual withholding with expected total tax, especially after raises or other income changes. A W-2 credit may be less than the final return liability.

Workers adjusting Form W-4

An adjustment can improve withholding but does not guarantee a refund. Recheck the estimate during the year as income changes.

Taxpayers with an expected balance due

Consider whether estimated payments are required rather than waiting until the return is filed.

People challenging the fairness of a tax rate

An administrative protest applies existing statutes. Policy objections to the rate must be directed to lawmakers, not used to reduce a correctly calculated assessment.

Common questions

Q: How much additional tax did Nevarez's 2000 return show?
A: $282.

Q: Did he dispute the calculation?
A: No. He conceded that the return and assessment correctly reflected the statutory liability.

Q: Does employer withholding fully discharge an employee's tax?
A: No. It is credited against total liability, and the employee owes any remaining balance.

Q: Can a taxpayer subject to withholding also need estimated payments?
A: Yes. Section 7-2-12.2 addressed estimated payments when withholding was insufficient.

Q: Were penalty and interest also upheld?
A: Yes. The decision upheld the $282 tax plus penalty and interest.

Citations and references

Statutes:

• NMSA 1978, § 7-2-3 — personal income tax on resident individuals' net income
• NMSA 1978, § 7-2-12 — individual responsibility to report income
• NMSA 1978, §§ 7-3-1 et seq. — Withholding Tax Act
• NMSA 1978, § 7-3-9 — withholding credited against the year's state income-tax liability
• NMSA 1978, § 7-2-12.2 — estimated tax when withholding does not cover projected liability

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Benny Nevarez
• Decision PDF: D&O 03-19

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
BENNY NEVAREZ No. 03-19
ID NO.
ASSESSMENT NO. 732944

DECISION AND ORDER

A formal hearing on the above-referenced protest was held September 29, 2003, before

Margaret B. Alcock, Hearing Officer.1 The Taxation and Revenue Department ("Department") was

represented by Bridget A. Jacober, Special Assistant Attorney General. Benny Nevarez (“Taxpayer”)

represented himself. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a New Mexico resident who works in Las Cruces, New Mexico.

2. At the beginning of each calendar year, the Taxpayer’s employer provides him with a

Form W-2 reporting the amount of tax withheld from his wages during the previous year.

3. Over time, the Taxpayer’s salary has increased, and his state income tax liability has

sometimes exceeded the amount of his withholding.

4. The Taxpayer went to the Department’s Las Cruces office to ask what he could do to

avoid having to pay additional tax at the end of the year.

5. The Department employee with whom he spoke advised him to reduce the

exemptions he was claiming on his W-4, and he made this adjustment.

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Although the hearing was scheduled for September 30, 2003, Mr. Nevarez mistakenly appeared for the
hearing on September 29th. Fortunately, the Department’s attorney and hearing officer were able to rearrange
their schedules to allow the taxpayer to present his case a day early.

6. When the Taxpayer prepared his 1997 and 1998 state income tax returns, the amount

of withholding exceeded the amount of his tax liability and he received a refund.

7. When the Taxpayer prepared his 2000 New Mexico income tax return, he found that

his tax liability exceeded the amount of taxes withheld from his wages by $282.

8. The Taxpayer filed his 2000 New Mexico income tax return showing the $282 as

“Tax Due” on Line 20 of the return, but did not include payment of the additional tax.

9. On August 27, 2002, the Department issued Assessment No. 732944 to the Taxpayer,

assessing him for the $282 of additional income tax due for 2000, plus penalty and interest.

10. On September 4, 2002, the Taxpayer filed a written protest to the assessment.

DISCUSSION

The issue to be decided is whether the Taxpayer should be required to pay the additional tax

due on his 2000 wage income. The Taxpayer concedes that the amount of tax shown on his New

Mexico income tax return (and on the Department’s assessment) accurately reflects his 2000 income

tax liability as set out in New Mexico’s tax statutes. The only basis for the Taxpayer’s protest is his

belief that the tax imposed is too high and that he should not be liable for amounts in excess of the tax

withheld by his employer.

New Mexico personal income tax is imposed “upon the net income of every resident

individual….” NMSA 1978, § 7-2-3. The obligation for reporting this income is on the individual

taxpayer. NMSA 1978, § 7-2-12. Although New Mexico’s Withholding Tax Act, NMSA 1978, §§

7-3-1, et seq., requires employers to withhold income tax from their employees’ wages, this does not

shift the ultimate liability for tax from the employee to the employer. NMSA 1978, § 7-3-9 provides

that amounts withheld “shall be credited against any state income tax liability for that taxable year.”

Nothing in the Withholding Tax Act or the Income Tax Act provides that the employer’s act of

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withholding discharges the employee from liability for taxes due in excess of the amount withheld.

To the contrary, NMSA 1978, § 7-2-12.2 makes it clear that even taxpayers subject to withholding

may be required to make additional estimated tax payments if the amount of the withholding is not

sufficient to cover the Taxpayer’s projected tax liability for the year.

The crux of the Taxpayer’s protest is that he failed to pay the additional tax due on his 2002

income because he believes New Mexico’s tax rates are too high and impose an unfair burden on

working people such as himself. This is an issue he must take up with his state legislator. The only

matter at issue in this administrative protest is whether the Department’s assessment of additional

personal income tax, penalty, and interest for the 2000 tax year is supported by New Mexico law.

Based on the Taxpayer’s own tax return and the statutes cited above, the Department’s assessment is

correct and there is no basis for abatement.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 732944, and jurisdiction

lies over the parties and the subject matter of this protest.

2. The Taxpayer is liable for the $282 of personal income tax, plus penalty and interest,

assessed against him for tax year 2000.

For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED September 30, 2003.

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