Colorado · 2026
What changed in Colorado for 2026
The 2026 Colorado return, the one filed in early 2027, looks different from last year’s in five places. All five are already law. None of them required anyone to vote, and most of them come from the state’s revenue rather than from any new tax policy.
Most of the differences on the 2026 Colorado return come from the state’s revenue picture rather than from new tax law. Collections came in about $176 million under the TABOR cap, which means no refund and switches off the credits tied to it. The rest come from the legislature’s response to the July 2025 federal tax law and from a ballot measure the voters approved in November 2025. The November 2026 ballot measures on the rate itself affect 2027 and later, not this return; the 2026 rate is 4.40%.
No TABOR refund
The State Controller certified in September 2026 that revenue for the 2025–26 fiscal year came in under the cap. There is no state sales tax refund on the 2026 return and no temporary rate cut, the first time in several years. Last year’s refund was $19 to $59 a person; this year the line is zero. Anyone who files only to collect the refund will collect nothing. Forecasters expect surpluses to return in 2026–27, which would mean refunds again on 2027 returns.
Overtime is taxed again
The federal “no tax on overtime” deduction, up to $12,500 or $25,000 joint for the premium half of time-and-a-half, still reduces federal tax. It no longer reduces Colorado tax: under HB25-1296 the deduction is added back on the Colorado return starting with 2026, on a new line. Employers have been told to keep withholding Colorado tax on overtime. The federal tips deduction is not added back and flows through. Nor is the $6,000 senior deduction, or the car loan interest deduction. A TABOR lawsuit challenging the addback is pending, and bills to repeal it failed in both the special session and the 2026 session; until a court says otherwise, it applies.
Proposition MM and the $300,000 line
Filers with federal AGI of $300,000 or more have had part of their federal deduction added back since 2023: the amount above $12,000 single or $16,000 joint. The voters approved Proposition MM in November 2025, and for 2026 the allowance drops to $1,000 single and $2,000 joint. Above the line, almost the whole federal deduction, standard or itemized, charitable gifts included, comes back into Colorado income. The money funds the school meals program. The rule and the planning around it are in Give it away, pay tax anyway.
Smaller credits, and one bigger one
Several Colorado credits are tied to the state’s revenue forecast. With no surplus, the triggers did not fire.
| Credit | 2025 | 2026 |
|---|---|---|
| Family affordability credit | Up to $3,273 / $2,455 per child | Not available |
| Colorado EITC (share of federal) | 50% | 25% |
| Colorado child tax credit (under 6) | $1,200 / $600 / $200 by income | Continues, inflation-adjusted |
| Child and dependent care credit | 50% of federal, AGI ≤ $60,000, plus a low-income version | One credit: 70% of federal (computed as if fully refundable), AGI ≤ $60,000; low-income version repealed |
| Electric vehicle credit | $3,500 (+$2,500 under $35,000 MSRP) | $750 (+$2,500 under $35,000 MSRP) |
| Heat pump credit (through contractor) | $1,500 air-source / $3,000 ground-source | Halved |
| E-bike point-of-sale discount | $450 | $250 |
| Early childhood educator credit | $872 – $1,743 | Expired |
| Qualified care worker credit | $1,200 | $1,200 (through 2028) |
| Colorado Promise tuition credit | Available | Available (through 2032) |
| Disability assistance credit | $400 – $1,200 | Continues, inflation-adjusted |
| Senior housing credit | Not available | Not available |
| Residential energy storage credit | 10% | 10% (through 2029) |
Sources: DOR January 2026 tax policy updates; HB24-1134; HB24-1311; SB25-026; Legislative Council September 2026 forecast.
One credit grew: the child care credit rises to 70% of the federal child and dependent care credit, and since the federal credit itself grew for 2026, families with child care costs get more from the state even in a lean year.
Worked example: a single parent, two springs
Two children under 6, $35,000 of wages, $4,000 of child care costs.
| Colorado credit | 2025 return (spring 2026) | 2026 return (spring 2027) |
|---|---|---|
| Family affordability credit | about $4,700 | $0 |
| EITC match (federal EITC about $7,000) | $3,500 | $1,750 |
| Child tax credit, two children, $35,000 AGI (middle tier) | $1,200 | about $1,200 (verify indexed amount) |
| Child care credit (federal credit about $1,400 in 2025, $2,000 in 2026) | $700 | $1,400 |
| Colorado refund from credits | about $10,100 | about $4,350 |
Nothing about the household changed. The state’s revenue did. If the spring 2026 refund went to rent or a car, the spring 2027 one will cover less than half of it.
Smaller changes
QBI addback for high earners is now permanent. HB25B-1001 from the August 2025 special session. Same thresholds as before: pass-through owners with federal AGI over $500,000 single / $1,000,000 joint add back the entire federal 20% deduction. It had been scheduled to expire after 2025.
Two new subtractions. The Segal AmeriCorps education award (HB24-1240) and first responder death benefits (SB25-310) become subtractions on the 2026 return.
529 and ABLE limits rise. CollegeInvest and Colorado ABLE contribution subtractions go to $26,200 single / $39,200 joint per beneficiary for 2026, up from $25,400 / $38,100.
SALT Parity election continues. The pass-through entity election stays available. With the federal SALT cap at $40,400 and phasing down above $505,000, the election still matters for business owners above those lines.
What did not change
Several “tax update” handouts circulating this year describe a Colorado addback of 50% of the federal qualified business income deduction. No such rule exists. Colorado’s long-standing addback of the QBI deduction applies only above $500,000 / $1,000,000 of AGI, in full, and did not change for 2026 except to become permanent. The Social Security and pension subtractions, the 529 subtraction (apart from the inflation bump) and the rate are all unchanged. A 2025 bill to remove the age limits on the Social Security subtraction died.
Behind the scenes
The overtime addback is only as good as the number it starts from. A preparer reconciles the overtime deduction on Schedule 1-A against the new overtime box on the 2026 W-2, confirm it is the federal premium half and not the whole overtime wage, apply the federal phase-out above $150,000 or $300,000 joint, and then carry exactly that figure to the Colorado addition line. Carry the gross overtime instead and Colorado tax is overstated; forget the line and the Department of Revenue will find it, since it has the federal return.
What to do now
If you earn overtime: make sure your employer is still withholding Colorado tax on it. If they stopped when the federal deduction appeared, you will owe it next April. A nurse with $5,700 of overtime premium deduction owes Colorado $251 on it.
If you got the family affordability credit this year: it will not be there next spring. Adjust now.
If your income is near $300,000: the Proposition MM addback is a cliff, not a phase-in. A one-time event in 2026 that pushes AGI over $300,000 (a bonus, a stock sale, a Roth conversion) can cost most of your federal deduction for Colorado purposes. Timing matters, especially for large charitable gifts.
If you are buying an EV: 2026 is the worst year, at $750. Unless you need the car now, 2027 is $2,000 under a law already passed.
If you are 55 to 64 and drawing Social Security: keep AGI at or under $75,000 / $95,000 and all of it stays out of Colorado tax. A big IRA withdrawal in the wrong year costs the whole subtraction.
What to bring your preparer
- Your 2026 W-2 with the new overtime and tips boxes, and the final pay stub if the overtime box looks like the whole overtime wage
- Last year’s Colorado return, so credits that are off for 2026 are not carried forward
- For families: children’s ages and ID numbers, and child care costs with the provider’s ID, since the child care credit grew
- If AGI is anywhere near $300,000: year-to-date income in November, so December decisions can be made with the line in view
- CollegeInvest and ABLE contributions, with the higher 2026 limits in mind
- For an AmeriCorps award or a first responder death benefit: the paperwork, since these subtractions are new
Questions people ask
Is there a TABOR refund on the 2026 return?
No. Revenue came in under the cap, so the sales tax refund line is zero and the rate stays 4.40%. Forecasts suggest a refund returns on 2027 returns.
Does Colorado tax my tips now too?
No. Only the overtime deduction is added back. The tips deduction flows through and reduces Colorado tax.
My payroll stopped withholding Colorado tax on overtime. Is that right?
No. The Department of Revenue told employers to keep withholding on overtime. Ask payroll to correct it, or expect a Colorado balance due in April.
I heard Colorado adds back half the QBI deduction. True?
No. The addback is 100% of the QBI deduction, but only for AGI over $500,000 single or $1,000,000 joint. Below that, nothing is added back.
Will the overtime addback be repealed?
Two attempts failed in 2025 and 2026 and a lawsuit is pending. Until a court rules or the legislature acts, it applies to 2026 income. The updates page will carry any change.
Don’t count last year’s Colorado refund as spring money
The two biggest changes on this page are a credit switched off and a refund that is zero. Neither is anyone’s fault and neither can be planned around; it just has to be known before the return is filed, not after.