This story by Lindsey Toomer appeared on Colorado Newsline on February 10, 2023.
The Internal Revenue Service decided Colorado’s Taxpayer’s Bill of Rights refunds are not subject to the federal income tax and don’t need to be claimed after multiple Colorado officials decried the possibility.
On February 3, the IRS encouraged taxpayers who were uncertain about their state refunds to hold off on filing their taxes until the agency released additional guidance. Colorado’s TABOR refunds totaling $750 for single filers and $1,500 for joint filers were among 19 state refunds called into question.
“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 IRS said in a statement.
Colorado’s full bipartisan federal delegation as well as Colorado Governor Jared Polis wrote to IRS Commissioner Douglas O’Donnell asking the agency to treat the refunds as non-taxable income.
“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,” Polis said in a news release. “This ultimately is the best outcome for families and individuals and we will continue seeking out more ways to save people money. I will continue fighting to maintain this precedent that refunds under TABOR should never be taxed.”
The IRS’s statement said generally state payments are included as taxable income for federal tax purposes but that exceptions would apply to many of the 2022 state payments, which it characterized as “general welfare and disaster relief” payments.
“The week-long uncertainty about whether the IRS was going to tax state refunds was a disaster,” U.S. Sen. Michael Bennet of Colorado said in a news release. “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.”