Looks like Colorado's TABOR refunds won’t be considered taxable income by the IRS this tax season.
Sen. Michael Bennet confirmed in a meeting with the IRS and Gov. Jared Polis that TABOR refunds will remain tax-free this filing season, a Bennet spokesperson said.
The IRS put out guidance in late August that would have essentially considered TABOR refunds taxable income. While the state gets revenues from different sources, the state constitution sets a limit on how much the state can keep. Funding above that amount is given back to the public.
Colorado’s elected officials were critical of the move, noting that there had been a 30-year precedent not to tax TABOR refunds.
Polis called it absurd saying, “the IRS would cost Coloradans money and confuse people.”
A bipartisan group of congressional lawmakers, led by Rep. Joe Neguse and Bennet, wrote to IRS commissioner Daniel Werfel on Aug. 31, urging the IRS “not to abandon 30 years of precedent.”
“The IRS has never treated TABOR refunds as income subject to tax,” Neguse, Bennet, Reps. Brittany Pettersen, Diana DeGette, Yadira Caraveo, Doug Lamborn, Ken Buck, and Jason Crow, and Sen. John Hickenlooper wrote. “The IRS should not change course now.”
GOP Rep. Lauren Boebert wrote her own letter to Werfel on Sept. 5, making the same argument.
Congressional lawmakers also submitted public comment, urging the IRS not to tax TABOR refunds and arguing it is a repayment of excess tax by the state.
“It is clear that TABOR refunds should not be considered includible in an individual’s Federal gross income and therefore should not be subject to further taxation,” wrote Neguse, Bennet, Hickenlooper, DeGette, Crow, Caraveo, Pettersen, Boebert and Lamborn.
In February 2023, state lawmakers were able to avert taxation of TABOR, when the IRS said then that it may consider TABOR as federal taxable income.
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