As a reminder for all Colorado employers: Colorado House Bill 1296 requires individuals to add back any overtime compensation excluded from federal gross income when calculating Colorado taxable income.

This change addresses the federal OBBBA provision that exempts overtime pay from federal income tax and takes effect on January 1, 2026.

Key Provisions for Employers and Taxpayers

SECTION 1 – Legislative Declaration: Explains the purpose:

• Align tax expenditures with legislative intent.
• Reduce administrative burden and confusion.
• Ensure revenue impact is minimal to comply with TABOR.

SECTION 6 – Overtime Add-Back (Effective Date: January 1, 2026)

• Requires adding back to Colorado taxable income any overtime pay excluded from federal gross income.

SECTION 13 – Withholding Tax Rules

• Expands withholding requirements to include non-wage compensation.
• Requires employers to report wages and other compensation in annual statements.
• Clarifies no withholding is required if compensation qualifies for subtraction under §39-22-104(4)(u).

Other Notable Changes

• Medical Marijuana Program Fees: Allows federal tax return as proof for fee waivers.
• Insurance Premium Reporting: Insurers must report premiums collected from tax-exempt entities.
• Care Worker Credit Definitions: Updates definitions for childcare programs.
• Medical Marijuana Sales Tax: Exempts sales to individuals using EBT or similar benefits began on July 1, 2025.

For additional information: Colorado HB 1296 – Tax Expenditure Adjustment

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