HB 26-1221 would revise several Colorado tax expenditures and create a new refundable income tax credit for families with children. The bill phases out the state alternative minimum tax credit after tax years beginning before January 1, 2026, and for tax years beginning on or after January 1, 2027 it requires corporations to add back the portion of the federal employee remuneration deduction under IRC section 162(m) that exceeds $250,000. It also shortens the corporate net operating loss carryforward period from 20 years to 10 years for losses generated in tax years beginning on or after January 1, 2027, and reduces the NOL usage cap from 80% to 70%.
In exchange for the revenue raised by those changes, the bill creates a new refundable family affordability tax credit beginning in 2027. The credit is available in addition to the existing child tax credit and family affordability tax credit, and is based on the number and ages of a taxpayer’s children and the taxpayer’s income. The credit is larger for children age five and under, smaller for children ages six through sixteen, and phases down as income rises above adjusted base income thresholds for single and joint filers. The Department of Revenue and Legislative Council staff would annually calculate the credit amount so that projected credits roughly offset the revenue gained from the bill’s other tax changes.
The bill would also require Legislative Council staff and the Department of Revenue to report and estimate the revenue effects of the new tax changes each year, and it authorizes the department to explore paying the credit in 12 monthly installments instead of a single annual refund. The credit would not count as income or resources for public assistance eligibility, and any amount exceeding a taxpayer’s income tax liability would be refunded. The bill is structured as a referendum-subject measure, meaning it would take effect only after the normal post-session period unless challenged by petition and, if necessary, approved by voters in November 2026.
Its impact on state law is to narrow certain corporate tax preferences, accelerate the expiration of some deductions and loss offsets, and redirect the resulting revenue into a new child-focused refundable credit. The legislation would amend Colorado’s income tax statutes governing corporate taxable income and net operating losses, while adding a new section establishing the family affordability credit and its administration, inflation adjustments, and annual revenue-based credit-setting mechanism.
The overall sentiment reflected in the bill text is strongly supportive of family tax relief and child poverty reduction, paired with a policy rationale that the state should reduce tax benefits for higher-income taxpayers and corporations. There is no recorded committee testimony or vote history in the provided materials, but the bill’s later status—postponed indefinitely in the Senate Finance Committee—suggests it encountered resistance or lacked sufficient support. The main points of contention apparent from the text are the reduction of corporate tax benefits, the add-back of executive compensation deductions, and the shorter net operating loss carryforward period, which would likely be opposed by business and corporate tax interests, versus supporters who would favor the refundable credit for low- and middle-income families with children.
The bill would amend Colorado income tax law by limiting or eliminating certain tax expenditures for corporations and high-income compensation deductions, while creating a new refundable family affordability credit tied to children and income. It changes the corporate addback rules for federal executive compensation deductions, reduces the net operating loss carryforward period and usage percentage for future losses, and establishes a new credit administered by the Department of Revenue and calibrated by Legislative Council staff to offset the revenue raised by the other provisions.
The bill’s stated purpose is broadly pro-family and anti-poverty, with the text emphasizing affordability, child poverty reduction, and targeted relief for households with children. At the same time, it is designed to raise revenue from corporate and higher-income tax preferences, which likely makes it more attractive to progressive tax and family-policy advocates than to business interests. The lack of recorded testimony and the Senate Finance Committee’s postponement indefinitely indicate that the measure did not advance with clear consensus.
The most notable points of contention are the bill’s revenue-raising provisions: the add-back of executive compensation deductions above $250,000, the reduction of corporate net operating loss carryforwards from 20 years to 10 years, and the lower 70% NOL usage cap. Opponents would likely argue these changes increase tax burden on corporations and reduce competitiveness, while supporters would argue they are needed to fund a refundable credit for families and to align the tax code with Colorado’s priorities. Another likely point of debate is the bill’s mechanism of annually setting the credit amount to match projected revenue gains, which could create uncertainty for taxpayers and administrators.