Did 25% of a taxpayer's $1,900 of unreimbursed medical expenses create a refundable New Mexico income tax credit?

Plain-English summary

Joan Oller's $1,900 of unreimbursed medical expenses supported a $475 deduction, not a $475 refundable credit. Because her expenses were far below the $28,000 threshold for the senior medical credit, the Department properly denied the refund.

New Mexico provided three different forms of medical-expense relief described in the decision:

• Section 7-2-35 allowed a percentage deduction for unreimbursed medical expenses not included in federal itemized deductions.
• Section 7-2-5.9 allowed a $3,000 additional exemption for a taxpayer over 65 whose qualifying expenses exceeded $28,000.
• Section 7-2-18.13 allowed a $2,800 refundable credit for a taxpayer over 65 whose qualifying expenses were at least $28,000.

Based on Oller's adjusted gross income, she qualified to deduct 25% of $1,900, or $475. Together with her other exemptions and deductions, that reduced her New Mexico taxable income to zero.

A deduction was not a refundable credit

Oller found the instructions confusing and entered the $475 as a refundable credit, producing a claimed refund of the same amount.

Her $1,900 of expenses did not meet the $28,000 threshold for either senior provision. The deduction could reduce taxable income, but it could not generate cash after tax reached zero.

Prior rebates came from a different provision

Oller argued that she should receive the refund because she had received a rebate in earlier years. The Department explained that those payments were the low-income comprehensive tax rebate under Section 7-2-14, not the medical credit.

She had qualified for that rebate from 2000 through 2005. In 2006, however, her modified gross income was just over the $22,000 limit. After reading the medical-credit statute at the hearing, she conceded that her expenses were below its threshold.

Result: the $475 refund denial stood.

Source-text notes

• Finding 6 says the Department denied the refund on June 14, 2006, although the ruling concerns the 2006 tax-year return and the protest was filed June 26, 2007. The decision does not reconcile that chronology.
• The findings identify the refundable credit as Section 7-2-18.13, while conclusion B cites Section 7-2-18.3. This summary uses the section number given in the detailed findings.

What this means for you

Taxpayers claiming medical expenses

Identify whether the provision is a deduction, exemption, nonrefundable credit, or refundable credit. Each changes the return differently, even when the same expenses are involved.

Older taxpayers reviewing New Mexico relief

The senior provisions applied only after a high medical-expense threshold under the law described in this 2007 decision. Ordinary unreimbursed expenses could still support the percentage deduction without creating a refund.

Taxpayers who received a rebate in prior years

Check which program produced the payment and re-test its annual income limits. A prior low-income rebate did not establish eligibility for a different medical credit.

Common questions

Q: How much could Oller deduct?
A: Twenty-five percent of $1,900, or $475.

Q: Why didn't the $475 become a refund?
A: It was a deduction that reduced taxable income, not a refundable credit.

Q: What was required for the senior refundable medical credit?
A: The decision states that a taxpayer over 65 needed at least $28,000 of qualifying unreimbursed medical expenses.

Q: Why did she receive rebates in earlier years?
A: She qualified for the separate low-income comprehensive tax rebate from 2000 through 2005.

Q: Why was that low-income rebate unavailable in 2006?
A: Her modified gross income was just over its $22,000 limit.

Citations and references

Statutes:

• NMSA 1978, § 7-2-35 — unreimbursed medical-care deduction
• NMSA 1978, § 7-2-5.9 — additional medical-care exemption for taxpayers over 65
• NMSA 1978, § 7-2-18.13 — refundable medical-care credit for taxpayers over 65
• NMSA 1978, § 7-2-14 — low-income comprehensive tax rebate

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Joan E. Oller
• Decision PDF: D&O 07-19

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
JOAN E. OLLER TO DENIAL OF CLAIM No. 07-19
FOR REFUND OF 2006 PERSONAL INCOME
TAX ISSUED UNDER LETTER ID L0521578240

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on October 30, 2007

before Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department

(“Department”) was represented by Elizabeth K. Korsmo, Special Assistant Attorney

General. Joan E. Oller represented herself. Based on the evidence and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Joan Oller incurred $1,900 of medical expenses during the 2006 tax year.

2. New Mexico law provides the following tax relief for taxpayers who incur

unreimbursed medical expenses:

(a) NMSA 1978, § 7-2-35 allows a taxpayer to claim a deduction for

unreimbursed medical care expenses the taxpayer incurred during the tax year if those

expenses are not included in the taxpayer’s itemized deductions for federal tax purposes.

The amount of the deduction is calculated as a percentage of the unreimbursed medical

expenses, with lower income taxpayers entitled to claim a greater percentage of their

expenses than higher income taxpayers.
(b) NMSA 1978, § 7-2-5.9 allows a taxpayer over the age of 65 to claim

an additional exemption of $3,000 for unreimbursed medical care expenses the taxpayer

incurred during the tax year if those expenses exceed $28,000.

(c) NMSA 1978, § 7-2-18.13 allows a taxpayer over the age of 65 to

claim a refundable credit of $2,800 for unreimbursed medical care expenses the taxpayer

incurred during the tax year if those expenses equal $28,000 or more.

3. In preparing her 2006 New Mexico income tax return, Ms. Oller was

entitled to claim the deduction provided in NMSA 1978, § 7-2-35. Based on her adjusted

gross income, Ms. Oller was eligible for a deduction equal to 25 percent of her $1,900

unreimbursed medical expenses. This $475 deduction, together with her other exemptions

and deductions, reduced her New Mexico taxable income to zero.

4. Because Ms. Oller’s medical expenses did not equal or exceed $28,000

during the 2006 tax year, she was not eligible for the exemption provided in NMSA 1978,

§ 7-2-5.9 or the refundable credit provided in NMSA 1978, § 7-2-18.13.

5. Because Ms. Oller found the Department’s instructions confusing, she

erroneously claimed 25 percent of her unreimbursed medical expenses as a refundable

credit on her 2006 income tax return. As a result, her return showed a refund due in the

amount of $475.

6. On June 14, 2006, the Department notified Ms. Oller that she did not

qualify for the credit claimed on her 2006 return and her $475 refund had been denied.

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7. On June 26, 2007, Ms. Oller filed a written protest to the denial of her

refund.

DISCUSSION

Ms. Oller maintains that she is entitled to the refundable credit for unreimbursed

medical expenses claimed on her 2006 return because she received a rebate in earlier

years. At the administrative hearing, the Department’s attorney explained that the rebate

Ms. Oller received was the low-income comprehensive tax rebate provided in NMSA

1978, § 7-2-14. This section allows taxpayers with modified gross incomes below

$22,000 to claim a rebate which is calculated on a sliding scale based on the taxpayer’s

income and exemptions. Ms. Oller qualified for and received this rebate for tax years

2000 through 2005. In 2006, her modified gross income was just over the $22,000 limit

and she was not eligible for the rebate in that year. The credit for unreimbursed medical

expenses was not an issue in earlier tax years and, after reading the pertinent statute, Ms.

Oller conceded that she did not qualify for this credit in the 2006 tax year because her

medical expenses were less than $28,000.

CONCLUSIONS OF LAW

A. Joan Oller filed a timely, written protest to the Department’s denial of her

refund claim for the 2006 tax year, and jurisdiction lies over the parties and the subject

matter of this protest.

B. Because Ms. Oller’s unreimbursed medical expenses were less than $28,000

during the 2006 tax year, she was not eligible for the refundable credit provided in NMSA

1978, § 7-2-18.3.

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C. Ms. Oller’s refund claim for tax year 2006 was properly denied.

Dated October 31, 2007.

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