diff --git a/src/macroexpand.scm b/src/macroexpand.scm
index a02d985a8cdcb..8fe352869976d 100644
--- a/src/macroexpand.scm
+++ b/src/macroexpand.scm
@@ -230,7 +230,7 @@
            ((macrocall)
             (if (or (eq? (cadr e) '@label) (eq? (cadr e) '@goto)) e
                 `(macrocall ,.(map (lambda (x)
-                                     (resolve-expansion-vars- x env m inarg))
+                                     (resolve-expansion-vars-with-new-env x env m inarg))
                                    (cdr e)))))
            ((symboliclabel) e)
            ((symbolicgoto) e)
diff --git a/test/core.jl b/test/core.jl
index 46a788ef52d28..1f623bb9e5213 100644
--- a/test/core.jl
+++ b/test/core.jl
@@ -3866,3 +3866,17 @@ function f16023()
     x = 1
 end
 @test_throws UndefVarError f16023()
+
+# issue #16096
+module M16096
+macro iter()
+  quote
+    @inline function foo(sub)
+      it = 1
+    end
+  end
+end
+end
+let ex = expand(:(@M16096.iter))
+    @test !(isa(ex,Expr) && ex.head === :error)
+end