State Earned Income Tax Credit Age Limit

Second Regular Session Seventy-fifth General Assembly STATE OF COLORADO INTRODUCED HOUSE BILL 26-1240 LLS NO. 26-0607.02 Pierce Lively x2059 HOUSE SPONSORSHIP Rutinel and Zokaie, SENATE SPONSORSHIP (None), House Committees Senate Committees Finance A BILL FOR AN ACT CONCERNING THE REMOVAL OF THE MAXIMUM AGE REQUIREMENT FOR THE STATE EARNED INCOME TAX CREDIT.

Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://leg.colorado.gov.) Under current law, only individuals of certain ages may qualify for the federal or state earned income tax credit. The federal "American Rescue Plan Act of 2021" temporarily lowered the minimum age requirement and removed the maximum age requirement for the federal earned income tax credit. In 2021, the lowered minimum age requirement was adopted for the state earned income tax credit (credit) indefinitely. Shading denotes HOUSE amendment. Double underlining denotes SENATE amendment.

Capital letters or bold & italic numbers indicate new material to be added to existing law. Dashes through the words or numbers indicate deletions from existing law.

For tax years commencing on or after January 1, 2028, the bill adopts the removal of the maximum age requirement for the credit indefinitely. An individual who claims the credit as a result of the bill may claim the credit in an amount determined in the same manner as an individual who claims the credit as a result of the prior adoption of the lowered minimum age requirement.

Be it enacted by the General Assembly of the State of Colorado:

SECTION 1. Legislative declaration.

(1) The General Assembly finds and declares that:

(a) Colorado's earned income tax credit is one of the state's most effective tools for supporting working families, reducing poverty, and encouraging workforce participation;

(b) In recent years, the General Assembly has taken important steps to modernize and expand the earned income tax credit, including extending eligibility to younger workers who were previously excluded;

(c) Fairness requires that Colorado's tax policy treat older working adults with the same respect and recognition afforded to younger workers;

(d) Many Coloradans over the age of sixty-five remain active in the workforce, often out of financial necessity, and these older workers contribute to their communities, support local economies, and, in many cases, help sustain multigenerational households;

(e) Under current law, age-based eligibility limits prevent many low- and moderate-income older workers from claiming the earned income tax credit, even though they meet the same income and work requirements as younger filers;

(f) The disparity in who can claim the earned income tax credit creates an inequitable outcome in a program designed to reward work and support those with limited earnings;

(g) Aligning eligibility for the earned income tax credit across age groups completes the policy direction the General Assembly has already embraced by ensuring that the earned income tax credit operates as a consistent, work-based support for all eligible Coloradans, regardless of age;

(h) Aligning eligibility for the earned income tax credit across age groups represents a modest and responsible fiscal investment;

(i) The structure of the earned income tax credit ensures that benefits of the credit target low- and moderate-income workers and flow directly back into local communities through everyday spending;

(j) Supporting older workers through the earned income tax credit helps promote financial stability, reduce reliance on more costly emergency assistance, and strengthen Colorado's economy; and

(k) When working seniors and grandparents can better meet basic needs, entire families and communities benefit.

SECTION 2. In Colorado Revised Statutes, 39-22-123.5, amend (3.5)(b)(I) and (3.5)(c) introductory portion; and add (2.7)(d) as follows:

39-22-123.5. Earned income tax credit - legislative declaration - repeal.

(2.7) (d) (I) FOR INCOME TAX YEARS COMMENCING ON OR AFTER JANUARY 1, 2028, A RESIDENT INDIVIDUAL IS ALLOWED AN EARNED INCOME TAX CREDIT AGAINST THE TAXES DUE UNDER THIS ARTICLE 22 THAT IS EQUAL TO THE APPLICABLE PERCENTAGE, SET FORTH IN SUBSECTION (2.7)(d)(II) OF THIS SECTION, OF THE FEDERAL CREDIT THAT THE RESIDENT INDIVIDUAL WOULD HAVE BEEN ALLOWED UNDER SECTION 32 (n)(2) OF THE INTERNAL REVENUE CODE, NOTWITHSTANDING THE DATE LIMITATION SET FORTH IN SECTION 32 (n) OF THE INTERNAL REVENUE CODE AS SPECIFIED IN SECTION 9621 (a) OF THE "AMERICAN RESCUE PLAN ACT OF 2021", PUB.L. 117-2.

(II) EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (3.5) OF THIS SECTION, THE PERCENTAGE USED TO CALCULATE THE AMOUNT OF CREDIT THAT CAN BE CLAIMED PURSUANT TO SUBSECTION (2.7)(d)(I) OF THIS SECTION IS TWENTY-FIVE PERCENT.

(3.5) (b) (I) For the income tax year commencing on January 1, 2025, the percentage of the federal earned income tax credit that the resident individual claimed or could have claimed that is used to calculate the amount of earned income tax credit allowed pursuant to subsections (2)(d), (2.5)(e), and (2.7)(c), AND (2.7)(d) of this section is increased by fifteen percentage points if the estimated adjustment factor is equal to or greater than two percent.

(c) For income tax years commencing on or after January 1, 2026, the percentage of the federal earned income tax credit that the resident individual claimed or could have claimed that is used to calculate the amount of earned income tax credit allowed pursuant to subsections (2)(d), (2.5)(e), and (2.7)(c), AND (2.7)(d) of this section is increased as follows if the estimated adjustment factor is as follows:

SECTION 3. Act subject to petition - effective date. This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 12, 2026, if adjournment sine die is on May 13, 2026); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2026 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.