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The Colorado Department of Revenue's Office of Tax Policy released several updates in January 2026. These updates cover revised publications, rulemaking activities, and new forms. Here's what changed and what it means.
New and Revised Publications (Tax Guides)
Individual Income Tax Guide
The Individual Income Tax Guide was revised to reflect multiple legislative changes affecting tax year 2026:
- Overtime Compensation Deduction Addback: Colorado will now add back the federal deduction for overtime compensation. This means overtime pay that is deductible at the federal level will still be subject to Colorado income tax. See House Bill 25-1296.
- Standard or Itemized Federal Deduction Addback: A new addback applies to the standard or itemized federal deduction, stemming from the passage of Proposition MM.
- Segal AmeriCorps Education Award Subtraction: Individuals who receive a Segal AmeriCorps Education Award can now subtract that amount from Colorado taxable income. See House Bill 24-1240.
- First Responder Death Benefit Subtraction: A new subtraction allows the exclusion of death benefits received on behalf of a first responder killed in the line of duty. See Senate Bill 25-310.
- Repeal of Various Subtractions: Several previously available income tax subtractions have been repealed. See House Bill 24-1036.
Child and Dependent Care / Low-Income Child Care Credits
- Two publications were updated: Income Tax Topics: Child and Dependent Care Expenses Credit and Income Tax Topics: Low-Income Child Care Expenses Credit. For tax year 2026, House Bill 24-1134 repeals the Low-Income Child Care Expenses Credit entirely. It also expands the Child and Dependent Care Expenses Credit by removing limits that were tied to how much someone owed in federal taxes.
Child Tax Credit and Family Affordability Tax Credit
- The publications for the Child Tax Credit and the Family Affordability Tax Credit were revised to reflect inflation adjustments to both credit amounts and income thresholds. No new legislation as these are annual adjustments tied to inflation.
Withholding Tax Guide
The Withholding Tax Guide was revised for two reasons:
- Overtime compensation withholding: New guidance addresses how employers should handle withholding for overtime pay that is deductible federally but taxable in Colorado.
- Nonresident disaster workers: Out-of-state workers responding to disasters in Colorado are no longer exempt from state tax withholding.
Fuel Tax Guide
- The Fuel Tax Guide received minor updates and now incorporates content from the discontinued publication Fuel Tax Restructuring Under HB21-1322. That standalone publication is no longer available.
Cigarette, Tobacco Products, and Nicotine Products Tax Guides
- The Cigarette Tax Guide, Tobacco Products Tax Guide, and Nicotine Products Tax Guide all received minor updates. No major policy changes.
Rulemaking Activities
Mandatory Electronic Filing and Payment
- A rulemaking hearing was held for proposed rules that would mandate electronic filing and payment for various taxes. If adopted, paper filing options for affected tax types would be eliminated.
Sales Tax Filing Schedules
- A rulemaking hearing addressed proposed changes that would raise the thresholds for how often businesses need to file sales tax returns. This could mean less frequent filing for lower-volume businesses. See House Bill 24-1041.
Sales Tax on Leases
- A stakeholder workgroup was announced to discuss a revised draft rule on how sales tax applies to leases. This is a discussion phase — no rule has been adopted.
Income Tax Withholding Rules
Several proposed rules were recently adopted covering:
- Withholding on wages
- Withholding on gambling winnings
- Withholding on nonresident real estate transactions
- Withholding on other payments
- Requirements for employers to inform employees about available tax credits
Tobacco Products and Nicotine Products Taxes
- The Department requested public input on draft rules for tobacco and nicotine product taxes. A stakeholder workgroup was also announced to clarify how "manufacturer's list price" is defined for tax purposes.
Master Settlement Agreement
- Public input was requested on draft rules regarding the Master Settlement Agreement, the 1998 agreement between tobacco companies and state attorneys general that governs ongoing payments to states.
Forms and Reports
Form DR 0796: Partnership Federal Adjustments Report
- A new Form DR 0796 was released. Partnerships can use this form to notify their partners about changes from a federal audit and report those changes to the state, as required by Colorado law.
