The IRS decides some of your Colorado refund is tax free, but it’s the IRS, so it can’t be that simple.
Colorado Cash Back Refund Is Tax Free
I don’t know how good your memory is, but in 2022, Colorado officials realized that Colorado residents would be in line for big Tabor refunds for 2022. Usually when Colorado gives out TABOR refunds, you get it as a part of the Colorado State income tax that you file tax returns for in the early part of the following year. For example, the 2022 TABOR refunds would normally be a part of your 2023 income taxes (part of it still is).
However, with the economy potentially sputtering to a halt and the end of the various federal income tax refunds sent early to prop up a post-Covid economy, Colorado politicians decided that they would send out some of the 2022 TABOR refunds in the fall instead of waiting until folks got around to filing taxes that are due in April 2023.
To pull this economic transfer off, Colorado officials had to anticipate how much the TABOR refund of 2022 would be with only half of the year’s data, so they picked a number that had a meaningful impact while still being far enough away from the actual refund required that there was no way it would be too much. As a result, Coloradoans got a check from the state government (or direct deposit) for $750 for individuals, or $1,500 for married filing jointly. Then, if you are like me, you forgot all about it.
IRS Will Not Tax Colorado Refunds for TABOR
Thankfully, the IRS will not tax Colorado refunds this year. That is how it always should have been. Coloradoans TABOR refunds have never been subject to income taxes before.
This is especially good news for people close to the line for income-based tax deductions.
By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or tax advice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please note that material may not be updated regularly and that some of the information may not be current. Consult with your own tax professional when making decisions regarding your tax situation.