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-HOUSE BILL 106
-
-57th legislature - STATE OF NEW MEXICO - second session, 2026
-
-INTRODUCED BY
-
-Mark Duncan and Luis M. Terrazas
-
-AN ACT
-
-RELATING TO TAXATION; CREATING THE HOME-BASED CHILD CARE INCOME
-TAX CREDIT.
-
-BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
-
-     SECTION 1.  A new section of the Income Tax Act is enacted
-to read:
-
-     "[NEW MATERIAL] HOME-BASED CHILD CARE INCOME TAX CREDIT.--
-
-          A.  A taxpayer who files an individual New Mexico
-income tax return, is not a dependent of another individual and
-does not enroll the taxpayer's dependent child in a state-funded or private child care facility or a state-funded or
-private pre-kindergarten program may claim a credit against the
-taxpayer's tax liability imposed pursuant to the provisions of
-the Income Tax Act.  The credit authorized pursuant to this
-section may be referred to as the "home-based child care income
-tax credit".
-
-          B.  Except as provided in Subsection D of this
-section, the amount of credit shall be in the amount of one
-thousand dollars ($1,000) per month for each month the
-dependent child is not eligible to enroll in public school.
-
-          C.  A taxpayer shall apply for certification of
-eligibility for the tax credit from the early childhood
-education and care department on forms and in the manner
-prescribed by that department.  Except as provided by
-Subsection F of this section, only one tax credit shall be
-certified per dependent child not enrolled in a state-funded or
-private pre-kindergarten program per month.  The early
-childhood education and care department may issue rules
-governing the procedure for administering the provisions of
-this subsection.  The early childhood education and care
-department shall provide the department with the certificates
-of eligibility issued pursuant to this subsection in an
-electronic format at regularly agreed-upon intervals.
-
-          D.  For the 2027 taxable year and each subsequent
-taxable year, the amount of credit provided in Subsection B of
-this section shall be adjusted to account for inflation.  The
-department shall make the adjustment by multiplying the credit
-amount by a fraction, the numerator of which is the consumer
-price index ending during the prior taxable year and the
-denominator of which is the consumer price index ending in tax
-year 2025.  The result of the multiplication shall be rounded
-down to the nearest one dollar ($1.00), except that if the
-result would be an amount less than the corresponding amount
-for the preceding taxable year, then an adjustment shall not be
-made.
-
-          E.  That portion of the home-based child care income
-tax credit claimed by a taxpayer that exceeds the taxpayer's
-income tax liability in the taxable year in which the home-based child care income tax credit is claimed shall be refunded
-to the taxpayer.
-
-          F.  Married individuals who file separate returns
-for a taxable year in which they could have filed a joint
-return may each claim only one-half of the home-based child
-care income tax credit provided in this section that would have
-been allowed on a joint return.
-
-          G.  The credit provided by this section shall be
-included in the tax expenditure budget pursuant to Section
-7-1-84 NMSA 1978, including the total annual aggregate cost of
-the credit.
-
-          H.  As used in this section, "dependent child" means
-a child who:
-
-                (1)  is a "dependent" as defined by Section 152
-of the Internal Revenue Code of 1986, as that section may be
-amended or renumbered, but also includes any minor child or
-stepchild of the taxpayer who would be a dependent for federal
-income tax purposes if the public assistance contributing to
-the support of the child or stepchild was considered to have
-been contributed by the taxpayer; and
-
-                (2)  is age five or younger."
-
-     SECTION 2.  APPLICABILITY.--The provisions of this act
-apply to taxable years beginning on or after January 1, 2026.
-
-- 4 -
+Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC)  for standing finance
+committees of the Legislature. LFC does not assume respon sibility for the accuracy of these reports  if they
+are used for other purposes.
+
+F I S C A L    I M P A C T    R E P O R T
+
+BILL NUMBER: House Bill 106
+SHORT TITLE: Home-Based Child Care Income Tax Credit
+SPONSOR: Duncan/Terrazas
+LAST
+UPDATE:
+ ORIGINAL
+DATE:
+
+02/03/26
+
+ANALYST: Graeser/Faubion
+
+REVENUE*
+(dollars in thousands)
+Type FY26 FY27 FY28 FY29 FY30 Recurring or
+Nonrecurring
+Fund
+Affected
+PIT $0.0 ($665,000.0) ($685,000.0) ($705,000.0) ($725,000.0) Recurring General Fund
+Parentheses indicate revenue decreases.
+*Amounts reflect most recent analysis of this legislation.
+
+ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
+(dollars in thousands)
+Agency/Program FY26 FY27 FY28 3 Year
+Total Cost
+Recurring or
+Nonrecurring
+Fund
+Affected
+ECECD $0 $251.0 $251.0 $502.0 Recurring General Fund
+TRD/ACD $0 Up to $150.0 Up to $150.0 Up to $300.0 Recurring General Fund
+Parentheses ( ) indicate expenditure decreases.
+*Amounts reflect most recent analysis of this legislation.
+
+Sources of Information
+LFC Files
+
+Agency or Agencies Providing Analysis
+Early Childhood Education and Care Department
+Ethics Commission
+
+Agency or Agencies That Were Asked for Analysis but did not Respond
+Public Education Department
+Taxation and Revenue Department
+
+SUMMARY
+
+Synopsis of House Bill 106
+
+House Bill 106 (HB106) creates a new personal income tax credit, the home- based child care
+income tax credit, for taxpayers who do not enroll a dependent child in a state -funded or private
+child care facility or a state- funded or private pre -kindergarten program. The credit is available
+for each month a dependent child is not eligible to enroll in public school.
+
+House Bill 106 – Page 2
+
+The credit is set at $1,000 per month per eligible dependent child. An eligible child is defined as
+age five or younger and not eligible to enroll in public school kindergarten. The maximum
+annual benefit is $12 thousand per child, and the credit is fully refundable.
+
+Taxpayers must apply to the Early Childhood Education and Care Department (ECECD) for
+certification of eligibility. Certified taxpayers would then claim the credit as part of their annual
+personal income tax filing with the Taxation and Revenue Department.
+
+The provisions of the bill apply to taxable years beginning on or after January 1, 2026, and the
+bill does not include a sunset date.
+
+FISCAL IMPLICATIONS
+
+This bill creates a fully refundable home -based child care income tax credit of $1,000 per month
+per eligible dependent child, or up to $12 thousand per child annually. Because the credit is
+refundable, the full value of the credit represents a potential reduction to general fund revenues.
+The fiscal impact therefore depends primarily on the number of children who meet the bill’s
+eligibility criteria and on household participation rates.
+
+To bound the potential impact, LFC developed two complementary approaches to estimating the
+number of eligible children. The first approach begins with the estimated population of children
+under age five in New Mexico, approximately 111,500 based on birth cohort data. LFC then
+subtracts an estimated 45,000 children under five who are enrolled in Early Childhood Education
+and Care Department (ECECD) –registered child care homes or licensed facilities, adjusted to
+reflect the recent expansion of the universal child care program. The remaining approximately
+66,500 children are not currently enrolled in registered or licensed care and could therefore meet
+the bill’s requirement that the dependent child not be enrolled in a state -funded or private child
+care facility or pre -kindergarten program. If all children in this residual population were eligible
+and claimed the credit for a full year, the resulting maximum annual fiscal impact would be
+approximately $798 million.
+
+Recognizing that this residual population likely overstates true eligibility and participation, LFC
+also considered workforce participation as a proxy for likely utilization. U.S. Census Bureau
+estimates indicate that approximately 60 percent of children under age five have all available
+parents participating in the workforce in New Mexico, implying that 40 percent have an
+available parent not in the workforce. Applying this share to the estimated under -five population
+yields approximately 44,600 children who could be eligible for home -based care under the bill.
+At the annual credit amount of $12 thousand per child, this approach yields an estimated annual
+fiscal impact of approximately $535.2 million. This scenario is more closely aligned with the
+bill’s intent to support families with an available parent providing care at home but may
+understate eligibility if some households with an available parent are nonetheless enrolled in
+registered or licensed care.
+
+Given the uncertainty surrounding actual participation, certification outcomes administered by
+ECECD, partial-year eligibility, shifting from out-of-home care to in-home care, and compliance
+with the bill’s requirements, LFC treats these two estimates as bookends rather than point
+forecasts. As a planning assumption, LFC considers the midpoint between the two scenarios—
+approximately $665 million annually—to represent a reasonable central estimate of the likely
+fiscal exposure. Actual impacts could be higher or lower depending on take -up rates, behavioral
+House Bill 106 – Page 3
+
+responses, and administrative enforcement.  This estimate was grown by an inflation factor to
+account for the indexing of credit.
+
+This bill creates a tax expenditure  with a cost that is difficult to determine but likely significant.
+Estimating the cost of tax expenditures ex ante is difficult. Confidentiality requirements
+surrounding certain taxpayer information create uncertainty, and analysts must frequently
+interpret third-party data sources. The statutory criteria for a tax expenditure may be ambiguous,
+further complicating the initial cost estimate of the fiscal impact. Once a tax expenditure has
+been approved, information constraints continue to create challenges in tracking the real costs
+(and benefits) of tax expenditures. LFC has serious concerns about the substantial  risk to state
+revenues from tax expenditures and the increase in revenue volatility from erosion of the revenue
+base. The committee recommends the bill adhere to the LFC tax expenditure policy principles
+for vetting, targeting, and reporting or action be postponed until the implications can be more
+fully studied.
+
+SIGNIFICANT ISSUES
+
+HB106 creates a fully refundable home -based child care income tax credit of $1,000 per month
+per eligible dependent child under age five who is not enrolled in public school, a state-funded or
+private child care facility, or a state -funded or private pre -kindergarten program. The policy
+intent of the bill appears to be to reduce the financial necessity for parents of very young children
+to participate in the workforce by directly compensating families who provide care at home.
+
+Some dual-earner households may elect for one parent to remain at home rather than utilize paid
+child care, reducing demand for publicly supported or subsidized child care slots. To the extent
+this occurs, the state could experience some offsetting savings on the appropriations side from
+reduced utilization of universal or subsidized child care programs. However, an unknown share
+of beneficiaries —particularly married households with toddlers —already have one parent
+staying home. In those cases, the credit would primarily compensate behavior that is already
+occurring rather than induce new labor -force or child -care decisions. In tax policy terms, this
+reflects “buying the base,” where a substantial portion of program cost is attributable to existing
+electors rather than behavioral change, increasing overall fiscal exposure without a
+commensurate change in outcomes.
+
+The bill’s eligibility structure is closely tied to New Mexico’s early education framework.
+Children must be under the age at which public school kindergarten is an option, which generally
+requires a child to be five years old before September 1 of the school year, with limited early
+enrollment options thereafter. As a result, the bill applies to a population currently served largely
+by private child care providers or informal care arrangements. While the credit may shift some
+families away from formal care, it does not directly expand early learning capacity and could
+affect enrollment stability for private providers, particularly smaller or rural providers that rely
+on consistent participation to cover fixed costs.
+
+Affordability concerns underpin the bill’s rationale. Federal guidance from the U.S. Department
+of Health and Human Services considers child care “affordable” if it costs no more than 7
+percent of household income, yet many families spend substantially more. In New Mexico,
+annual costs for center -based care for toddlers and preschoolers can exceed $10,000 per child.
+While the credit c ould offset these costs for eligible families, it would also provide the same
+benefit to households that may already have the financial means to remain single- income, raising
+House Bill 106 – Page 4
+
+questions about targeting and distributional efficiency, particularly in the absence of income
+limits.
+
+The size and refundability of the credit raise significant administrative, compliance, and fiscal
+control considerations. The credit may reach $12  thousand per child per year and is fully
+refundable, meaning taxpayers may receive a net payment from the state even with no income
+tax liability. Refundable credits operate outside the annual appropriations process, and utilization
+could grow more quickly than anticipated, complicating revenue forecasting and reducing budget
+flexibility.
+
+There is also a heightened risk of improper or fraudulent claims. While verification of a child’s
+age could be accomplished through birth records, detecting under -the-table income or informal
+employment would be difficult, particularly if fewer W -2s are issued as parents exit the formal
+workforce. In addition, verifying compliance for families utilizing informal or unregistered child
+care arrangements would be challenging. The bill conditions eligibility on a child not being
+enrolled in a state- funded or private child care or pre -kindergarten program, but many families
+rely on care provided by relatives, neighbors, home -based nannies, or unlicensed providers that
+operate outside formal reporting systems and do not generate enrollment records. Distinguishing
+between true home-based parental care and informal third-party care would therefore be difficult
+to administer and enforce, increasing the risk of improper claims and placing additional
+verification burdens on both ECECD and the Taxation and Revenue Department (TRD).
+
+Finally, the creation of a fully refundable tax credit raises constitutional considerations under the
+Anti-Donation Clause of Article IX, Section 14 of the New Mexico Constitution. Courts have
+held that both refundable and non- refundable tax credits may violate the clause when they
+function as targeted subsidies rather than bargained- for exchanges. Because a refundable credit
+can result in a negative tax liability—requiring direct payments from the state—the constitutional
+analysis turns on whether the state receives sufficient consideration in exchange for the transfer.
+Anticipated public benefits alone are not sufficient to remove a transfer from the Anti- Donation
+Clause’s scope. It is unclear whether the credit’s conditions would be deemed sufficiently
+contractual in nature or whether any enumerated exceptions would apply, and the bill could
+therefore be subject to constitutional scrutiny.
+
+PERFORMANCE IMPLICATIONS
+
+The LFC tax policy of accountability is met with the bill’s requirement to report annually to an
+interim legislative committee regarding the data compiled from the reports from taxpayers taking
+the credit and other information to determine whether the  credit is meeting its purpose.  These
+data will be published in the annual tax expenditure report required by 7-1-84 NMSA 1978.
+
+ADMINISTRATIVE IMPLICATIONS
+
+HB106 requires ECECD to certify eligibility every month for each child, creating a steady
+stream of applications, verification tasks, and data management responsibilities resulting in a
+demand for new staffing, updated technology systems, and stronger coordination with TRD  to
+ensure accurate and timely processing of refundable credits. Verifying that children are not
+enrolled in any public or  private child care or pre‑K program also adds complexity, increasing
+the need for agency-wide data checks and clear procedures to prevent errors or duplicate claims.
+
+House Bill 106 – Page 5
+
+Because the taxpayer must apply for a certification of eligibility from the ECECD for the  tax credit,
+ECECD estimates that three (3) additional Full Time Employees (FTEs) will be required to process
+certifications of eligibility. ECECD estimates that the cost of each FTE will be approximately $83,680
+each, per year, including benefits, for a total of $251,040 without which ECECD cannot absorb the
+additional work required.
+
+OTHER SUBSTANTIVE ISSUES
+
+In assessing all tax legislation, LFC staff considers whether the proposal is aligned with committee-
+adopted tax policy principles. Those five principles:
+• Adequacy: Revenue should be adequate to fund needed government services.
+• Efficiency: Tax base should be as broad as possible and avoid excess reliance on one tax.
+• Equity: Different taxpayers should be treated fairly.
+• Simplicity: Collection should be simple and easily understood.
+• Accountability: Preferences should be easy to monitor and evaluate.
+
+In addition, staff reviews whether the bill meets principles specific to tax expenditures. Those policies and
+how this bill addresses those issues:
+
+Tax Expenditure Policy Principle Met? Comments
+Vetted: The proposed new or expanded tax expenditure was vetted
+through interim legislative committees, such as LFC and the Revenue
+Stabilization and Tax Policy Committee, to review fiscal, legal, and
+general policy parameters.
+
+No record of interim
+committee hearing
+could be found.
+Targeted: The tax expenditure has a clearly stated purpose, long -term
+goals, and measurable annual targets designed to mark progress toward
+the goals.
+
+Purpose is implicit –
+to encourage stay-
+at-home parents.
+Clearly stated purpose 
+Long-term goals 
+Measurable targets ?
+Transparent: The tax expenditure requires at least annual reporting by
+the recipients, the Taxation and Revenue Department, and other relevant
+agencies
+
+Will be published in
+the Tax Expenditure
+Report required by
+7-1-84 NMSA 19878
+Accountable: The required reporting allows for analysis by members of
+the public to determine progress toward annual targets and determination
+of effectiveness and efficiency. The tax expenditure is set to expire unless
+legislative action is taken to review the tax expenditure and extend the
+expiration date.
+
+The public will be
+confused by the
+increase in the tax
+expenditure and a
+corresponding
+reduction in child
+care subsidies.
+Public analysis 
+Expiration date 
+Effective: The tax expenditure fulfills the stated purpose. If the tax
+expenditure is designed to alter behavior – for example, economic
+development incentives intended to increase economic growth – there are
+indicators the recipients would not have performed the desired actions
+“but for” the existence of the tax expenditure.
+ Will be plagued with
+buying the base
+Implicit purpose can
+be measured. Fulfills stated purpose ?
+Passes “but for” test 
+Efficient: The tax expenditure is the most cost-effective way to achieve
+the desired results.
+Key:  Met      Not Met     ? Unclear
+
+LG/JF/ct/cf/sgs