Senate Bill 25-136 Introduced

A Bill for an Act

• Page 1, Line 101Concerning an expansion of the state income tax subtraction

• Page 1, Line 102for retirement benefits to allow an individual to

• Page 1, Line 103subtract all such benefits from federal taxable

• Page 1, Line 104income for the purpose of calculating state taxable

• Page 1, Line 105income regardless of the individual's income or age.

Bill Summary

(Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://leg.colorado.gov.)

Current law allows any individual to deduct amounts, up to certain caps based on the individual's age, received as pensions or annuities from any source, to the extent included in federal adjusted gross income.

Notwithstanding the caps on the deduction for amounts received as pensions or annuities from other sources, current law allows any individual who is 65 years of age or older at the close of a taxable year to subtract the total amount of social security benefits that the individual received from the individual's federal taxable income, to the extent those benefits were included in federal taxable income, when determining the individual's state taxable income. Beginning January 1, 2025, this subtraction is also allowed to any individual who is 55 years of age or older and has an adjusted gross income for the applicable tax year that is less than or equal to $75,000 if filing individually or $95,000 if filing jointly.

For income tax years commencing on or after January 1, 2026, the bill removes all caps on the deduction for amounts received as pensions and annuities and allows any individual, regardless of age or income, to subtract the total amount that the individual received as pension or annuity income from the individual's federal taxable income, to the extent that income was included in federal taxable income, when determining the individual's state taxable income.

• Page 2, Line 1Be it enacted by the General Assembly of the State of Colorado:

• Page 2, Line 2SECTION 1.  In Colorado Revised Statutes, 39-22-104, amend

• Page 2, Line 3(4)(f)(I), (4)(f)(III)(A), and (4)(f)(III)(B); repeal (4)(f)(III)(C) and (4)(f)(III)(D); and add (4)(f)(IV), (4)(f)(V), and (4)(f)(VI) as follows:

• Page 2, Line 439-22-104.  Income tax imposed on individuals, estates, and

• Page 2, Line 5trusts - single rate - report - tax preference performance statement

• Page 2, Line 6- legislative declaration - definitions - repeal. (4)  There shall be subtracted from federal taxable income:

• Page 2, Line 7(f) (I)  Subject to the provisions of this subsection (4)(f), for

• Page 2, Line 8income tax years commencing on or after January 1, 1989, amounts

• Page 2, Line 9received as pensions or annuities from any source by any individual who

• Page 2, Line 10is fifty-five years of age or older at the close of the taxable year, to the extent included in federal adjusted gross income;

• Page 2, Line 11(III) (A)  For income tax years commencing prior to

• Page 3, Line 1January 1, 2026, amounts subtracted under this subsection (4)(f) are

• Page 3, Line 2capped at twenty thousand dollars per tax year for any individual who is

• Page 3, Line 3fifty-five years of age or older but less than sixty-five years of age at the

• Page 3, Line 4close of the taxable year. For income tax years commencing on or after

• Page 3, Line 5January 1, 2025, the cap set forth in this subsection (4)(f)(III)(A) is

• Page 3, Line 6calculated by first considering the total amount of social security benefits

• Page 3, Line 7a taxpayer received that were included in federal taxable income at the

• Page 3, Line 8close of the taxable year. If the total amount of such social security

• Page 3, Line 9benefits exceeds the cap set forth in this subsection (4)(f)(III)(A), and the

• Page 3, Line 10taxpayer's adjusted gross income for the applicable tax year is less than

• Page 3, Line 11or equal to seventy-five thousand dollars if filing individually or

• Page 3, Line 12ninety-five thousand dollars if filing jointly, then the cap is increased to an amount equal to the total amount of such social security benefits.

• Page 3, Line 13(B)  For income tax years commencing prior to January 1,

• Page 3, Line 142026, amounts subtracted under this subsection (4)(f) are capped at

• Page 3, Line 15twenty-four thousand dollars per tax year for any individual who is

• Page 3, Line 16sixty-five years of age or older at the close of the taxable year. For

• Page 3, Line 17income tax years commencing on or after January 1, 2022, the cap set

• Page 3, Line 18forth in this subsection (4)(f)(III)(B) is calculated by first considering the

• Page 3, Line 19total amount of social security benefits a taxpayer received that were

• Page 3, Line 20included in federal taxable income at the close of the taxable year. If the

• Page 3, Line 21total amount of such social security benefits exceeds the cap set forth in

• Page 3, Line 22this subsection (4)(f)(III)(B), then the cap is increased to an amount equal to the total amount of such social security benefits.

• Page 3, Line 23(C)  For the purpose of determining the subtraction allowed by this

• Page 3, Line 24subsection (4)(f), in the case of a joint return, social security benefits

• Page 3, Line 25included in federal taxable income shall be apportioned in a ratio of the

• Page 4, Line 1gross social security benefits of each taxpayer to the total gross social security benefits of both taxpayers.

• Page 4, Line 2(D)  As used in this subsection (4)(f), "pensions and annuities"

• Page 4, Line 3means retirement benefits that are periodic payments attributable to

• Page 4, Line 4personal services performed by an individual prior to his or her retirement

• Page 4, Line 5from employment and that arise from an employer-employee relationship,

• Page 4, Line 6from service in the uniformed services of the United States, or from

• Page 4, Line 7contributions to a retirement plan that are deductible for federal income

• Page 4, Line 8tax purposes. "Pensions and annuities" includes distributions from

• Page 4, Line 9individual retirement arrangements and self-employed retirement

• Page 4, Line 10accounts to the extent that such distributions are not deemed to be

• Page 4, Line 11premature distributions for federal income tax purposes, amounts

• Page 4, Line 12received from fully matured privately purchased annuities, social security

• Page 4, Line 13benefits, and amounts paid from any such sources by reason of permanent disability or death of the person entitled to receive the benefits.

• Page 4, Line 14(IV) (A)  For income tax years commencing on or after

• Page 4, Line 15January 1, 2026, all amounts received as pensions or annuities

• Page 4, Line 16from any source by any individual who is fifty-five years of age

• Page 4, Line 17or older at the close of the taxable year, to the extent included in federal adjusted gross income;

• Page 4, Line 18(B)  In accordance with section 39-21-304 (1), which

• Page 4, Line 19requires each bill that creates a new tax expenditure to include

• Page 4, Line 20a tax preference performance statement as part of a statutory

• Page 4, Line 21legislative declaration, the general assembly finds and

• Page 4, Line 22declares that the general purpose of the tax expenditures

• Page 4, Line 23created in this subsection (4)(f)(IV) is to provide tax relief for

• Page 4, Line 24certain individuals and that the specific purpose of the tax

• Page 5, Line 1expenditures is to provide such tax relief to individuals who

• Page 5, Line 2receive pension or annuity benefits. The general assembly and

• Page 5, Line 3the state auditor shall measure the effectiveness of the

• Page 5, Line 4exemption allowed by this section based on the total amount of

• Page 5, Line 5pension and annuity benefits that individuals subtract from

• Page 5, Line 6their federal taxable income when calculating their state

• Page 5, Line 7taxable income. The department of revenue, in consultation

• Page 5, Line 8with the state auditor, shall collect the information necessary

• Page 5, Line 9for the state auditor to measure the effectiveness of the income

• Page 5, Line 10tax subtraction allowed by this subsection (4)(f)(IV) based on

• Page 5, Line 11the total amount of pension or annuity benefits that individuals

• Page 5, Line 12subtract from their federal taxable income when calculating their state taxable income.

• Page 5, Line 13(V)  For the purpose of determining the subtraction

• Page 5, Line 14allowed by this subsection (4)(f), in the case of a joint return,

• Page 5, Line 15social security benefits included in federal taxable income

• Page 5, Line 16shall be apportioned in a ratio of the gross social security

• Page 5, Line 17benefits of each taxpayer to the total gross social security benefits of both taxpayers.

• Page 5, Line 18(VI)  As used in this subsection (4)(f), "pensions and

• Page 5, Line 19annuities" means retirement benefits that are periodic payments

• Page 5, Line 20attributable to personal services performed by an individual

• Page 5, Line 21prior to the individual's retirement from employment and that

• Page 5, Line 22arise from an employer-employee relationship, from service in

• Page 5, Line 23the uniformed services of the United States, or from

• Page 5, Line 24contributions to a retirement plan that are deductible for

• Page 5, Line 25federal income tax purposes. "Pensions and annuities" includes

• Page 6, Line 1distributions from individual retirement arrangements and

• Page 6, Line 2self-employed retirement accounts to the extent that such

• Page 6, Line 3distributions are not deemed to be premature distributions for

• Page 6, Line 4federal income tax purposes, amounts received from fully

• Page 6, Line 5matured privately purchased annuities, social security benefits,

• Page 6, Line 6and amounts paid from any such sources by reason of permanent disability or death of the person entitled to receive the benefits.

• Page 6, Line 7SECTION 2.  Act subject to petition - effective date. This act

• Page 6, Line 8takes effect at 12:01 a.m. on the day following the expiration of the

• Page 6, Line 9ninety-day period after final adjournment of the general assembly; except

• Page 6, Line 10that, if a referendum petition is filed pursuant to section 1 (3) of article V

• Page 6, Line 11of the state constitution against this act or an item, section, or part of this

• Page 6, Line 12act within such period, then the act, item, section, or part will not take

• Page 6, Line 13effect unless approved by the people at the general election to be held in

• Page 6, Line 14November 2026 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.