C.R.S. § 39-22-123.5 — Earned income tax credit - legislative declaration - repeal

(1) The general assembly hereby finds and declares that: (a) The federal earned income tax credit is a refundable tax credit for low- and middle-income working individuals and families whose earnings are below an income threshold; (b) The amount of the credit increases with income until the credit reaches a maximum level and then phases out, and this structure creates an incentive for people to work and earn more income; (c) Since its establishment in 1975, the credit has increased family income, reduced child poverty, and promoted employment by supplementing the earnings of low-wage workers, including military families; (d) The credit has a positive impact on the education and health of children living in poverty; (e) The credit has a positive economic impact on local economies and businesses because it puts more money in the hands of low- and middle-income working people who spend the money on immediate needs, such as groceries, school supplies, car repairs, rent, and health care; (f) The Colorado earned income tax credit created in section 39-22-123 is ten percent of the federal earned income tax credit, but it is a mechanism to refund excess state revenues as required by section 20 of article X of the state constitution; (g) This existing credit has not been in effect since 2001 because the refund has not been triggered; and (h) Now, therefore, it is the intent of the general assembly to establish a permanent and refundable state earned income tax credit for eligible Colorado taxpayers. The intended purpose of this credit is to help individuals and families achieve greater financial security and to help Colorado's economy. (2) (a) (I) For an income tax year commencing prior to January 1, 2022, a resident individual who claims an earned income tax credit on the individual's federal tax return is allowed an earned income tax credit against the taxes due under this article 22 that is equal to ten percent of the federal credit that the resident individual claimed on his or her federal tax return for the same tax year. (II) This subsection (2)(a) is repealed, effective December 31, 2032. (b) (I) For income tax years commencing on or after January 1, 2022, but before January 1, 2023, a resident individual who claims an earned income tax credit on the individual's federal tax return is allowed an earned income tax credit against the taxes due under this article 22 that is equal to twenty percent of the federal credit that the resident individual claimed on his or her federal tax return for the same tax year. (II) This subsection (2)(b) is repealed, effective December 31, 2033. (c) (I) For income tax years commencing on or after January 1, 2023, but before January 1, 2024, a resident individual who claims an earned income tax credit on the individual's federal tax return is allowed an earned income tax credit against the taxes due under this article 22 that is equal to twenty-five percent of the federal credit that the resident individual claimed on his or her federal tax return for the same tax year. (II) This subsection (2)(c) is repealed, effective December 31, 2034. (d) (I) A resident individual who claims an earned income tax credit on the individual's federal tax return is allowed an earned income tax credit against the taxes due under this article 22 that is equal to the applicable amount set forth in subsection (2)(d)(II) of this section. (II) Except as otherwise provided in subsection (3.5) of this section, the credit amount that can be claimed pursuant to subsection (2)(d)(I) of this section is: (A) For the income tax year commencing on January 1, 2024, fifty percent of the federal credit that the resident individual claimed on the resident individual's federal tax return for the same tax year; (B) For the income tax year commencing on January 1, 2025, thirty-five percent of the federal credit that the resident individual claimed on the resident individual's federal tax return for the same tax year; and (C) For income tax years commencing on or after January 1, 2026, twenty-five percent of the federal credit that the resident individual claimed on the resident individual's federal tax return for the same tax year. (2.5) (a) (I) For income tax years commencing on or after January 1, 2020, but before January 1, 2022, a resident individual is allowed an earned income tax credit against the taxes due under this article 22 that is equal to ten percent of the federal credit that the resident individual would have been allowed, but for the fact that the resident individual, the resident individual's spouse, or one or more of the resident individual's dependents do not have a social security number that is valid for employment. (II) This subsection (2.5)(a) is repealed, effective December 31, 2032. (b) (I) For income tax years commencing on or after January 1, 2022, but before January 1, 2023, a resident individual is allowed an earned income tax credit against the taxes due under this article 22 that is equal to twenty percent of the federal credit that the resident individual would have been allowed, but for the fact that the resident individual, the resident individual's spouse, or one or more of the resident individual's dependents do not have a social security number that is valid for employment. (II) This subsection (2.5)(b) is repealed, effective December 31, 2033. (c) Repealed. (d) (I) For income tax years commencing on or after January 1, 2023, but before January 1, 2024, a resident individual is allowed an earned income tax credit against the taxes due under this article 22 that is equal to twenty-five percent of the federal credit that the resident individual would have been allowed, but for the fact that the resident individual, the resident individual's spouse, or one or more of the resident individual's dependents do not have a social security number that is valid for employment. (II) This subsection (2.5)(d) is repealed, effective December 31, 2034. (e) (I) A resident individual is allowed an earned income tax credit against the taxes due under this article 22 that is equal to the applicable percentage set forth in subsection (2.5)(e)(II) of this section of the federal credit that the resident individual would have been allowed, but for the fact that the resident individual, the resident individual's spouse, or one or more of the resident individual's dependents do not have a social security number that is valid for employment. (II) Except as otherwise provided in subsection (3.5) of this section, the percentage used to calculate the amount of credit that can be claimed pursuant to subsection (2.5)(e)(I) of this section is: (A) For the income tax year commencing on January 1, 2024, fifty percent; (B) For the income tax year commencing on January 1, 2025, thirty-five percent; and (C) For income tax years commencing on or after January 1, 2026, twenty-five percent. (2.7) (a) (I) For income tax years commencing on or after January 1, 2022, but before January 1, 2023, a resident individual is allowed an earned income tax credit against the taxes due under this article 22 that is equal to twenty percent of the federal credit that the resident individual would have been allowed under section 32 (n)(1) of the internal revenue code, notwithstanding the date limitation set forth in section 32 (n) of the internal revenue code as specified in section 9621 (a) of the American Rescue Plan Act of 2021, Pub.L. 117-2. (II) This subsection (2.7)(a) is repealed, effective December 31, 2033. (b) (I) For income tax years commencing on or after January 1, 2023, but before January 1, 2024, a resident individual is allowed an earned income tax credit against the taxes due under this article 22 that is equal to twenty-five percent of the federal credit that the resident individual would have been allowed under section 32 (n)(1) of the internal revenue code, notwithstanding the date limitation set forth in section 32 (n) of the internal revenue code as specified in section 9621 (a) of the American Rescue Plan Act of 2021, Pub.L. 117-2. (II) This subsection (2.7)(b) is repealed, effective December 31, 2034. (c) (I) A resident individual is allowed an earned income tax credit against the taxes due under this article 22 that is equal to the applicable percentage set forth in subsection (2.7)(c)(II) of this section of the federal credit that the resident individual would have been allowed under section 32 (n)(1) of the internal revenue code, notwithstanding the date limitation set forth in section 32 (n) of the internal revenue code as specified in section 9621 (a) of the American Rescue Plan Act of 2021, Pub.L. 117-2. (II) Except as otherwise provided in subsection (3.5) of this section, the percentage used to calculate the amount of credit that can be claimed pursuant to subsection (2.7)(c)(I) of this section is: (A) For the income tax year commencing on January 1, 2024, fifty percent; (B) For the income tax year commencing on January 1, 2025, thirty-five percent; and (C) For income tax years commencing on or after January 1, 2026, twenty-five percent. (2.8) (a) For income tax years commencing on or after January 1, 2023, but before January 1, 2024, only, the rate of credit allowed for the resident individuals described in subsections (2), (2.5), and (2.7) of this section, respectively, is increased from twenty-five percent to fifty percent of the federal credit described in the respective subsections (2), (2.5), and (2.7) of this section. (b) The general assembly finds and declares that increasing the rate of the credit as specified in subsection (2.8)(a) of this section reduces the amount of state revenues, as defined in section 24-77-103.6 (6)(c), for the 2023-24 state fiscal year and is therefore, after excess state revenues for the 2022-23 state fiscal year are refunded pursuant to sections 39-3-209, 39-3-210, and any other refund mechanism provided for in law other than the refund mechanism provided for in part 20 of this article 22, a reasonable method of refunding a portion of any remaining excess state revenues for the 2022-23 state fiscal year that are required to be refunded in the 2023-24 state fiscal year in accordance with section 20 (7)(d) of the state constitution. (c) This subsection (2.8) is repealed, effective December 31, 2034. (3) Repealed. (3.5) (a) As used in this subsection (3.5), unless the context otherwise requires: (I) Applicable forecast means either the quarterly December revenue forecast prepared by legislative council staff or the quarterly December revenue forecast prepared by the office of state planning and budgeting in the December immediately preceding the applicable state fiscal year as determined by which immediately preceding March forecast the joint budget committee of the general assembly used in the preparation of the state budget. (II) Applicable state fiscal year means the fiscal year that begins in the income tax year for which the credit is allowed. (III) BV means the estimate of the state's nonexempt revenue for state fiscal year 2024-25 included in the 2024 office of state planning and budgeting March revenue forecast. (IV) CAGR means the estimated compound annual growth rate. (V) Estimated adjustment factor means, for a given income tax year, the CAGR for nonexempt revenue that is calculated by the executive director according to the following formula: [Insert 39-22-123.5(3.5)(a)(V) and 39-22-130(2)(b)(I).pdf here] (VI) EV means the estimate of the state's nonexempt revenue for the applicable state fiscal year included in the applicable forecast excluding the projected aggregate amount of the increased portion of the earned income tax credit allowed pursuant to subsection (3.5)(b) or (3.5)(c) of this section and the projected aggregate amount of the credit allowed pursuant to section 39-22-130, created in House Bill 24-1311, enacted in 2024, for the given income tax year. (VII) n means, for the applicable state fiscal year, the number of state fiscal years that have passed since the 2024-25 state fiscal year. (VIII) Nonexempt revenue means, for the applicable state fiscal year, the revenues that are identified as nonexempt revenues in the annual comprehensive financial report published by the office of the state controller. (b) (I) For the income tax year commencing on January 1, 2025, the percentage of the federal earned income tax credit that the resident individual claimed or could have claimed that is used to calculate the amount of earned income tax credit allowed pursuant to subsections (2)(d), (2.5)(e), and (2.7)(c) of this section is increased by fifteen percentage points if the estimated adjustment factor is equal to or greater than two percent. (II) This subsection (3.5)(b) is repealed, effective December 31, 2035. (c) For income tax years commencing on or after January 1, 2026, the percentage of the federal earned income tax credit that the resident individual claimed or could have claimed that is used to calculate the amount of earned income tax credit allowed pursuant to subsections (2)(d), (2.5)(e), and (2.7)(c) of this section is increased as follows if the estimated adjustment factor is as follows: (I) Equal to or greater than three percent but less than three and eighteen one-hundredths percent, by five percentage points; (II) Equal to or greater than three and eighteen one-hundredths percent but less than three and thirty-seven one-hundredths percent, by ten percentage points; (III) Equal to or greater than three and thirty-seven one-hundredths percent but less than three and fifty-six one-hundredths percent, by fifteen percentage points; (IV) Equal to or greater than three and fifty-six one-hundredths percent but less than three and seventy-five one-hundredths percent, by twenty percentage points; and (V) Equal to or greater than three and seventy-five one-hundredths percent, by twenty-five percentage points. (4) The amount of the credit allowed under this section that exceeds the resident individual's income taxes due is refunded to the individual. (5) In the case of a part-year resident, the credit allowed under this section is apportioned in the ratio determined under section 39-22-110 (1). (6) The credit allowed under this section is not considered to be income or resources for the purpose of determining eligibility for the payment of public assistance benefits and medical assistance benefits authorized under state law or for a payment made under any other publicly funded programs. Source: L. 2013: Entire section added, (SB 13-001), ch. 381, p. 2227, § 3, effective August 7. L. 2020: (1)(h) and (2) amended, (2.5) added, and (3) repealed, (HB 20-1420), ch. 277, p. 1360, § 5, effective July 11. L. 2021: (2.5)(a) amended and (2.5)(c) repealed, (HB 21-1002), ch. 5, p. 31, § 2, effective January 21; (2)(b) and (2.5)(b) amended and (2)(c), (2.5)(d), and (2.7) added, (HB 21-1311), ch. 298, p. 1772, § 4, effective June 23. L. 2023: (2)(a), (2)(c)(I), (2.5)(a), (2.5)(d)(I), and (2.7)(b)(I) amended and (2)(d), (2.5)(e), and (2.7)(c) added, (HB 23-1112), ch. 445, p. 2621, § 1, effective August 7. L. 2023, 1st Ex. Sess.: (2.8) added, (HB 23B-1002), ch. 3, p. 16, § 1, effective November 20. L. 2024: (2.8) R&RE, (HB 24-1084), ch. 1, p. 2, § 2, effective January 31; (2)(b), (2)(c)(I), (2)(d), (2.5)(b), (2.5)(d)(I), (2.5)(e), (2.7)(a), (2.7)(b)(I), and (2.7)(c) amended and (2.8)(c) and (3.5) added, (HB 24-1134), ch. 172, p. 928, § 3, effective August 7. L. 2025: (3.5)(a)(III) amended, (HB 25-1335), ch. 410, p. 2331, § 3, effective June 3. Editor's note: Amendments to subsection (2.8) by HB 24-1084 and HB 24-1134 were harmonized. Cross references: (1) In 2013, this section was added by the Colorado Working Families Economic Opportunity Act of 2013. For the short title, see section 1 of chapter 381, Session Laws of Colorado 2013. (2) For the short title (Tax Fairness Act) in HB 20-1420, see section 1 of chapter 277, Session Laws of Colorado 2020. (3) For the legislative declaration in HB 21-1311, see section 1 of chapter 298, Session Laws of Colorado 2021. For the legislative declaration in HB 24-1084, see section 1 of chapter 1, Session Laws of Colorado 2024. For the legislative declaration in HB 25-1335, see section 1 of chapter 410, Session Laws of Colorado 2025.