HB1062 would expand Colorado’s income tax subtraction for retirement benefits. Under current law, taxpayers age 55 and older can subtract certain pension and annuity income from federal taxable income when calculating Colorado taxable income, but the subtraction is subject to dollar caps for many taxpayers. The bill would eliminate those caps beginning with tax years starting on or after January 1, 2027, allowing eligible individuals age 55 or older to subtract all pension and annuity income included in federal taxable income.
The bill also retains and clarifies related rules for the subtraction, including definitions of “pensions and annuities” and the treatment of joint returns. It includes a tax preference performance statement stating that the purpose of the new tax expenditure is to provide tax relief to individuals receiving pension or annuity benefits, and it directs the Department of Revenue, in consultation with the State Auditor, to collect information needed to measure the subtraction’s effectiveness.
Impact
If enacted, HB1062 would amend Colorado Revised Statutes section 39-22-104 to broaden the state income tax subtraction for retirement income and remove existing caps on pension and annuity subtractions for taxpayers age 55 and older starting in 2027. This would reduce state taxable income for qualifying retirees and could lower state income tax liability for individuals with substantial retirement distributions, including distributions from IRAs, self-employed retirement accounts, private annuities, military retirement, and certain disability or death-related payments. The bill would also create a new tax expenditure subject to performance measurement and reporting by the Department of Revenue and State Auditor.
Sentiment
The bill appears to have been framed as a tax-relief measure for retirees and older Coloradans, with its stated purpose focused on expanding the subtraction for retirement benefits. However, the available voting history shows the House Finance Committee did not advance the measure: one motion to refer it to Appropriations failed 4-7, and the committee then postponed the bill indefinitely by a 7-4 vote. That pattern suggests there was meaningful support, but not enough to move the bill forward in committee.
Contention
The main point of contention is fiscal impact versus tax relief. Supporters would likely view the bill as a straightforward expansion of retirement-income tax relief for older taxpayers, especially those with larger pension or annuity income. Opponents likely focused on the cost to state revenues and the policy choice of eliminating income-based caps, which would extend the benefit to higher-income retirees as well as those with more modest incomes. The committee votes indicate the bill was divisive, with a narrow but unsuccessful effort to send it to Appropriations before it was killed in Finance.