By Meghan Tanis
Colorado Department of Revenue
On March 11, President Joseph R. Biden signed into federal law the American Rescue Plan Act (Public Law 117-2). The federal legislation is extensive, but specifically in regards to the taxability of unemployment compensation designates that a portion (up to $10,200 received by each spouse) of unemployment benefits received by certain taxpayers in tax year 2020 will be retroactively exempted from federal income tax.
All Coloradans who received unemployment benefits in 2020 and have already filed their federal tax return are strongly encouraged to consider refiling their federal return to ensure their unemployment benefits are exempt from federal income tax.
Colorado’s income tax statutes do not incorporate retroactive federal statutory changes that are enacted after the last day of a taxable year. As a result, the American Rescue Plan Act will not impact state income tax returns for the year 2020, including the taxation of unemployment compensation.
The governor and other state leaders announced the Colorado Recovery Plan to support individuals and businesses. State leaders will continue to review the aspects of the American Rescue Plan Act to find additional ways to support individuals who have experienced unemployment and employers in Colorado who pay unemployment insurance premiums, and to support a strong economic recovery for Colorado.
Colorado taxpayers who have already filed a state tax return for 2020 and included all of their unemployment compensation in the amount of taxable income reported do not need to take any additional action with respect to their Colorado return. Taxpayers who amend their federal return (or take other action to claim this benefit as directed by the IRS), must not amend their filed Colorado return to claim a reduction of income related to this retroactive change.
Colorado taxpayers who are still preparing to file their 2020 state tax return are still required to add back the amount of unemployment compensation excluded from their federal taxable income in accordance with the American Rescue Plan Act. This amount should be added to line 6 (other additions) of their Colorado Individual Income Tax Return, along with any other addbacks required by law. In the explanation field, enter “Unemployment Compensation.” Refer to pages 5 and 6 of the instructions in the Colorado Individual Income Tax Filing Booklet (DR 0104 Book) for details on other additions. This booklet and other income tax forms are available on the website at Tax.Colorado.gov/Individual-Income-Tax-Forms. Additional instructions will be published after the IRS releases further guidance.
Colorado individual income tax returns and tax payments are due April 15. Colorado offers an automatic six-month extension to file your income tax return, meaning taxpayers may file until Oct. 15. There is no extension of the deadline to pay. If additional tax is due, taxpayers need to make an extension payment using form DR 0158-I on or before April 15. Visit Colorado.gov/RevenueOnline to file and pay online.
The department is continuing to review the other tax provisions of the American Rescue Plan Act and will provide further instructions on applicable provisions shortly. Taxpayers with questions can call the tax information hotline at (303) 238-SERV (7378) Monday through Friday from 8 a.m. to 4:30 p.m.
For questions regarding 1099-Gs issued for unemployment benefits, contact the Colorado Department of Labor and Employment at (303) 536-5615.