What's Happening?
Colorado taxpayers will receive smaller TABOR refund checks in 2026 compared to previous years. The state's constitution mandates that excess tax revenue be returned to residents, and the surplus for the fiscal year ending June 30, 2025, totaled $296 million. This amount will be distributed primarily through Homestead Property Tax refunds, benefiting older homeowners, disabled veterans, and gold star spouses. The remaining funds will be allocated based on income, with single filers earning up to $56,000 receiving $20, and those earning at least $329,001 receiving $62. Joint filers will receive double these amounts. The reduction in general TABOR refunds is partly due to the expansion of the Earned Income Tax Credit and the introduction of the Family Affordability Tax Credit, which will be paid out in 2026.
Why It's Important?
The decrease in TABOR refunds reflects a shift in Colorado's fiscal policy, prioritizing targeted tax credits over general refunds. This change aims to provide more substantial benefits to lower-wage workers and families, potentially reducing income inequality. However, it also means that higher-income earners will receive less in refunds, which could impact their spending and investment decisions. The policy shift may influence future legislative decisions regarding tax credits and refunds, as well as the state's approach to managing budget surpluses.
What's Next?
State economists predict that Colorado will remain below the TABOR cap in the next fiscal year, marking a departure from the trend of surpluses since the pandemic began. This could lead to no refunds in the following year, affecting taxpayers' expectations and financial planning. The state's fiscal strategy will likely continue to evolve, with potential adjustments to tax credits and refund policies based on economic conditions and legislative priorities.
