HB26-1062 would expand Colorado’s income tax subtraction for retirement income by allowing qualifying taxpayers age 55 and older to subtract all pension and annuity income from federal taxable income when calculating Colorado taxable income, beginning with tax years on or after January 1, 2027. Under current law, the subtraction is capped at $20,000 for taxpayers ages 55 to 64 and $24,000 for taxpayers 65 and older, with certain income-based adjustments tied to Social Security benefits. The bill would eliminate those caps entirely for pensions and annuities, while retaining the existing age threshold and the general framework for determining the subtraction.
The bill also updates the statutory definition of “pensions and annuities” and carries forward language covering retirement benefits from employer plans, military service, IRAs, self-employed retirement accounts, privately purchased annuities, Social Security benefits, and certain disability or death-related payments. It includes a tax preference performance statement, indicating the General Assembly’s intent that the new subtraction provide tax relief to individuals receiving pension or annuity benefits, and directs the Department of Revenue and State Auditor to collect and evaluate information on the amount of income taxpayers subtract under the provision.
In practical terms, the bill would reduce state taxable income for many retirees and could lower state income tax collections by broadening the retirement-income subtraction. It would amend Colorado Revised Statutes section 39-22-104, which governs individual income tax subtractions, and would repeal the current cap provisions that limit the amount of retirement income eligible for subtraction before 2027. The measure is subject to the standard referendum process and would take effect after the 2026 legislative session unless challenged by petition.
The general sentiment reflected in the bill text is favorable toward tax relief for retirees, with the measure framed as an expansion of benefits for older Coloradans receiving retirement income. However, the bill was postponed indefinitely in the House Finance Committee, indicating that it did not advance out of committee. No vote tally or transcript is available, so the specific reasons for opposition are not documented in the provided materials.
The main point of contention appears to be the fiscal and policy tradeoff between providing broader retirement-income tax relief and preserving state revenue. Because the bill removes income caps and allows full subtraction of pension and annuity income for eligible taxpayers, it likely raises concerns about cost, distributional effects, and whether the benefit should be targeted to lower- and middle-income retirees rather than extended without limit to all qualifying taxpayers.
The bill would amend Colorado’s individual income tax subtraction statute, section 39-22-104(4)(f), to eliminate the dollar caps on pension and annuity subtractions for taxpayers age 55 and older beginning in tax year 2027. It would also revise related definitional and administrative provisions, including a tax preference performance statement and reporting/evaluation language for the Department of Revenue and State Auditor. The practical effect would be to reduce taxable income for eligible retirees and potentially decrease state income tax revenue.
The bill appears to have been introduced as a pro-retiree tax relief measure and is framed in supportive terms for individuals receiving pension or annuity income. At the same time, its failure in the House Finance Committee by postponement indefinitely suggests there was not enough support to move it forward, likely reflecting concern about revenue loss or the breadth of the tax break. No recorded votes or transcripts are available to show a more detailed split.
The likely controversy centers on whether Colorado should fully exempt pension and annuity income for taxpayers 55 and older, or continue using capped subtractions that limit the revenue impact. Supporters would view the bill as meaningful relief for retirees and a simplification of the current subtraction rules. Opponents or skeptics would likely focus on the fiscal cost, the loss of targeting through income caps, and whether the benefit should be limited to lower-income seniors rather than extended broadly to all eligible taxpayers.