Concerning modifying the state income tax on overtime compensation to apply only in the 2026 income tax year.
Summary
SB26-056 narrows Colorado’s current income tax treatment of overtime compensation so that the add-back requirement applies only for the 2026 income tax year. Under existing law, taxpayers must add back overtime compensation that was excluded or deducted from federal gross income when calculating Colorado taxable income; this bill would limit that adjustment to one tax year instead of leaving it in place indefinitely. The measure also includes a repeal date for the subsection, effective December 31, 2032, though the operative tax change is expressly limited to 2026.
As introduced, the bill would affect individual income tax filers who receive overtime pay and claim a federal exclusion or deduction tied to that compensation. It would amend Colorado Revised Statutes section 39-22-104, which governs the state income tax base for individuals, estates, and trusts. The bill is set to take effect after the standard referendum period following adjournment, unless challenged by petition and referred to voters.
Impact
The bill would temporarily change Colorado’s income tax base by requiring the add-back of excluded or deducted overtime compensation only for tax year 2026, rather than as a continuing rule. This would directly affect taxpayers with overtime income and would alter administration of the state individual income tax under C.R.S. 39-22-104(3)(u). Because the provision is time-limited, it would not create a permanent change in the treatment of overtime compensation, but it would still require tax preparation and Department of Revenue implementation for the 2026 filing cycle.
Sentiment
The available legislative history shows limited recorded debate, with no committee transcript excerpts or vote details provided. The bill advanced at least as far as the Senate Committee on Appropriations, where it was laid over unamended and an amendment failed, suggesting some procedural movement but not strong consensus. Overall, the bill appears to have been treated as a targeted tax policy adjustment rather than a broadly controversial measure, though the absence of detailed discussion makes the level of support or opposition difficult to gauge.
Contention
The main point of contention appears to be whether Colorado should continue requiring taxpayers to add back overtime compensation to state taxable income, even temporarily, and whether that policy should apply only in 2026. Potential concerns would likely come from taxpayers and advocates for workers who view the add-back as increasing tax liability on earned overtime, while supporters may see the provision as a limited, budget-conscious tax rule. The failed amendment in Appropriations indicates there was at least some disagreement over the bill’s terms, but no specific arguments are available in the provided record.