American Rescue Plan Act Impact on 2020 Colorado Income Tax Returns
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 earlier this week 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.
For more information about how this impacts your 2020 federal income tax return, visit the IRS website.
Economic Impact Payments
The federal Internal Revenue Service (IRS) began issuing the third round of Economic Impact Payments (also known as stimulus checks) in March 2021. For more information and to check the status of your Economic Impact Payment, visit the IRS website.
The first two rounds of Economic Impact Payments were advance payments of the 2020 Recovery Rebate Credit. If you did not receive your first and/or second Economic Impact Payment or got less than the full amounts, you may be eligible to claim the 2020 Recovery Rebate Credit. To claim the credit, you must file a 2020 federal individual income tax return even if you do not usually file a tax return. For more information about claiming the federal Recovery Rebate Credit, visit the IRS website.
Impact on PTC Rebate Recipients
The 2020 Economic Impact Payments do not count as income when you are determining whether you are eligible for the 2020 PTC Rebate. If you need more information about eligibility or how to apply, visit the PTC Rebate web page.
CARES Act Paycheck Protection Program (PPP) Loans
The exclusion of covered loans from gross income under section 1106(i) of the federal CARES Act (P.L. 116-136) was a prospective provision in effect during the tax year. As such, covered loans excluded from federal taxable income will be similarly excluded from Colorado taxable income.
Section 276 of the COVID-Related Tax Relief Act of 2020 (P.L. 116-260, Division N, Title II, Subtitle B) changed the Small Business Act to prevent the denial of deductions and basis increases, and the reduction of tax attributes, because of the exclusion of covered loan forgiveness from gross income. This act became law on December 27, 2020, and retrospectively applied to taxable years ending after the enactment of the CARES Act.
Therefore, these changes will impact the Colorado tax liability for calendar-year taxpayers. The Colorado tax liability of taxpayers whose tax years ended before December 27, 2020 will not be impacted by these retrospective amendments in accordance with 1 CCR 201-2, Rule 39-22-103(5.3).
Additional tax information can be found in the CARES Act Tax Law Changes & Colorado Impact guidance publication.