The IRS decided it won’t tax TABOR refunds

Updated 5:22 p.m.

Coloradans will not owe money to the federal government on tax revenue refunds sent out last summer.

Gov. Jared Polis’ office announced Friday afternoon that the IRS decided the early TABOR payments — which are required by the state constitution when tax revenues come in above a certain cut-off — are not subject to federal income tax.

“The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns,” the Service said in a news release.

This decision also means there’s no reason for early bird tax filers not to get their returns in as soon as they want. It also means anyone who already filed does not have to fill out additional paperwork.

Colorado sent $750 to individuals and $1,500 to join filers last summer.

The IRS warned residents in several states earlier this week that it was still deciding how to handle what it called “relief funds” issued in 2022 — including Colorado’s early TABOR checks. But Colorado officials argued that TABOR refunds had not been taxed in 30 years and that to do so now would break precedent.

Colorado’s congressional delegation had sent a letter of protest to the IRS. Sen. Michael Bennet also spoke with the acting commissioner of the IRS.

The news of the IRS’s decision Friday was immediately celebrated by Colorado’s leaders.

“We, like millions of Coloradans, are breathing a sigh of relief that the IRS and federal government have stepped away from taxing our refunds this year,” said Polis in a statement announcing the decision.

But Bennet called the week of uncertainty a “disaster.”

“As chair of the Senate’s subcommittee on IRS oversight, I will demand answers for why the IRS explored this radical change, and why this took place in the middle of filing season. And as the IRS looks to the 2023 tax year, I will continue to fight to keep TABOR tax-free.”

The state is expected to send Coloradans smaller refunds this year.