Colorado TABOR refunds not taxable but IRS advises to wait

Taxpayers should hold off on filing their returns if they received a special refund last year — such as Colorado’s refund under the Taxpayer Bill of Rights — the Internal Revenue Service advised.

In response, Colorado officials are saying the TABOR refunds aren’t taxable, since they’re just excessively collected tax dollars already. The state Department of Revenue is meanwhile waiting for more guidance that the IRS said should arrive next week.

“Colorado is uniquely positioned as we have used a refund mechanism for excess state revenues since the inclusion of the Taxpayer Bill of Rights (TABOR) in our state constitution starting in 1992,” according to a statement from Department of Revenue spokesperson Dan Carr, noting that the refunds have taken many forms since then. “We have provided this information to the Internal Revenue Service in response to the questions they’ve raised to many states. We will continue to monitor the IRS process and be clear on our position that these refunds are not taxable.”

Colorado is one of 19 states that offered inflation relief or tax refunds last year, according to the Associated Press. The IRS said in an unattributed statement that it is working with state tax officials on the matter. It called the rules surrounding state payments “complex.”

The IRS advises taxpayers to wait for more guidance about the taxability of those payments or to consult with a tax professional. It does not recommend amending a previously filed return.

Colorado officials last year sent $750 checks to individual taxpayers, or $1,500 to joint filers, who lived in the state for all of 2021. It was the largest-ever TABOR rebate. Lawmakers voted to expedite the refunds and deliver them in equal amounts to all eligible taxpayers.

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