January 2026 Tax Policy Updates

Information about the recent activities of the Office of Tax Policy is provided below. This information includes new and revised publications, rulemaking activities, and recently published letter rulings and information letters.

New and Revised Publications

• Individual Income Tax Guide – This guide was revised to reflect a variety of legislative changes:
  • Overtime Compensation Deduction Addback (for tax year 2026) – House Bill 25-1296
  • Standard or Itemized Federal Deduction Addback (for tax year 2026) – Proposition MM
  • Segal AmeriCorps Education Award Subtraction (for tax year 2026) – House Bill 24-1240
  • First Responder Death Benefit Subtraction (for tax year 2026) – Senate Bill 25-310
  • Repeal of various subtractions – House Bill 24-1036
• Income Tax Topics: Child and Dependent Care Expenses Credit and Income Tax Topics: Low-Income Child Care Expenses Credit – These two publications were revised to reflect changes made by House Bill 24-1134 for tax year 2026 to repeal the Low-Income Child Care Expenses Credit and modify the Child and Dependent Care Expenses Credit to eliminate restrictions on the credit based on the amount of federal tax liability the taxpayer has.
• Income Tax Topics: Child Tax Credit and Income Tax Topics: Family Affordability Tax Credit – These two publications were revised to reflect inflation adjustments to credit amounts and income thresholds.
• Withholding Tax Guide –  This publication was revised to provide guidance regarding withholding requirements for overtime compensation that is deductible for federal tax purposes but subject to Colorado tax and to reflect the elimination of the withholding exemption for nonresident disaster related workers.
• Fuel Tax Guide – This publication was revised to make numerous minor updates and to incorporate content from our existing publication Fuel Tax Restructuring Under HB21-1322, which has been discontinued.
• Cigarette Tax Guide, Tobacco Products Tax Guide, and Nicotine Products Tax Guide – These publications were revised to make numerous minor updates.

Rulemaking Activities

• Mandatory Electronic Filing and Payment – We recently held a rulemaking hearing for proposed rules that would mandate electronic filing and payment for various taxes.
• Sales Tax Filing Schedules – We recently held a rulemaking hearing for proposed amendments to Rule 39-26-109 to conform the rule to legislative changes made in House Bill 24-1041 and to increase the threshold for each filing frequency for sales tax returns.
• Sales Tax on Leases – We recently announced a stakeholder workgroup to discuss a revised draft rule regarding sales tax on leases.
• Income Tax Withholding Rules - We recently adopted several proposed rules regarding income tax withholding on wages, gambling winnings, nonresident real estate transactions, and other payments, as well as a proposed rule regarding the notice employers must provide their employees relating to certain federal and state income tax credits.
• Tobacco Products and Nicotine Products Taxes – We recently requested public input on draft rules regarding tobacco products and nicotine products taxes and announced a stakeholder workgroup for two of the draft rules defining certain terms used in the statutory definitions of “manufacturer’s list price.”
• Master Settlement Agreement  – We recently requested public input on draft rules regarding the Master Settlement Agreement.

Forms and Reports

• Form DR 0796 and Partnership Federal Adjustments Report - We recently released a new form DR 0796, which partnerships may use to comply with the partner notification requirements, and the Partnership Federal Adjustments Report required by House Bill 23-1277 and Department Rule 39-22-601.5–1 in 1 CCR 201-2.