The American Rescue Plan Act, which was signed into law March 11, 2021, retroactively excluded up to $10,200 in unemployment compensation from federal taxable income for tax year 2020. To qualify, taxpayers were required to have a modified gross income below $150,000. When the American Rescue Plan Act was enacted, a Department rule provided that retroactive changes in federal law did not affect a taxpayer's Colorado income tax liability. In accordance with this rule, the Department advised taxpayers who had filed their federal and state returns that they should not amend their state return to remove the excludable unemployment compensation.
A recent court decision determined that the rule was incorrect and that retroactive changes in federal law can affect a taxpayer's Colorado taxable income. As a result, eligible taxpayers who did not previously exclude up to $10,200 of unemployment compensation from the federal taxable income reported to Colorado, or who added back the excluded amount of unemployment compensation, may amend their 2020 income tax return to claim the exclusion. An amended return will be accepted if it is filed within the statute of limitations. For most impacted taxpayers, this means they will need to file an amended return on or before May 17, 2025.
For detailed information regarding the 2020 unemployment compensation exclusion, you can view our most recent publication.