Concerning an income tax credit for a contribution to a health savings account.
Summary
SB 26-029 would create a new Colorado state income tax credit for resident individuals who contribute to a health savings account (HSA) tied to a high-deductible health insurance plan. The credit equals 25% of the taxpayer’s HSA contribution for the year, subject to caps of $500 for single filers, $1,000 for joint filers, and $1,500 for contributions to a family health plan. The credit would apply to tax years beginning on or after January 1, 2027, and before January 1, 2033.
The bill also includes a tax preference performance statement and legislative declaration stating that the purpose of the credit is to provide tax relief and encourage greater HSA contributions. It directs the General Assembly and State Auditor, in consultation with the Department of Revenue, to measure the credit’s effectiveness by tracking whether HSA contributions increase because of the incentive. The credit is nonrefundable, cannot be carried forward if it exceeds a taxpayer’s liability, and the section is scheduled to repeal on December 31, 2037.
Impact
The bill would add a new section to the Colorado Revised Statutes, section 39-22-131, creating a temporary state income tax expenditure for HSA contributions. It would affect resident individual taxpayers who have qualifying high-deductible health plans, including plans offered through the Colorado Health Benefit Exchange, by reducing their state income tax liability for eligible contributions made during the covered years. Because the credit is nonrefundable and noncarryforward, its benefit is limited to taxpayers with sufficient tax liability in the year claimed.
Sentiment
The available record shows limited public debate, but the bill’s stated purpose suggests it was framed as a tax-relief and health-savings incentive measure. Its introduction indicates support for encouraging consumer-directed health coverage and personal savings for medical expenses. However, the bill was postponed indefinitely in the Senate Committee on State, Veterans, & Military Affairs on February 3, 2026, which indicates the measure did not advance and may have faced insufficient support or unresolved concerns.
Contention
The main policy questions likely concern whether a state tax credit is an effective use of revenue to encourage HSA participation, and whether the benefit would primarily help higher-income taxpayers who are more likely to have the disposable income to contribute to an HSA. The nonrefundable structure may also limit access for lower-income filers, while supporters would likely emphasize tax relief, consumer choice, and incentives for saving for healthcare costs. The committee’s decision to postpone indefinitely suggests at least some hesitation about the fiscal cost or policy effectiveness of the proposal.