TABOR and taxes have a big impact on seniors in Colorado. TABOR is one of the best friends to seniors in Colorado because it limits the growth of government spending (unless approved by Colorado voters) which, in turn, reduces the need for more taxation. In addition, there are other laws that benefit Colorado taxpayers 55 and older who get a $20,000 retirement income exclusion from state taxes, and the exclusion reaches $24,000 when they reach 65. Seniors may qualify for this exemption of up to 50% of the first $200,000 of property value if they’ve lived in the same house for 10 years. In the November 2000 election, Colorado voters passed a Property Tax Exemption for seniors, known as Referendum A. It is called the Homestead Exemption Act.
Conversely, a big downside for retirees is that Colorado’s sales taxes (which have a local component) are on the high side and can exceed 11% in some parts of the state. Seniors need to be vigilant about local sales tax increase proposals and local property tax increase proposals that are relentless in requesting more money. Local governments and special districts frequently attempt to elude TABOR restrictions by de-Brucing. As a result, local government tax growth often exceeds the state tax growth rate. Colorado taxpayers have rejected over 20 statewide tax increases since the TABOR amendment to the Colorado Constitution was approved by the voters in 1992. Seniors should oppose de-Brucing efforts at the local level to preserve the TABOR provisions.
Excepting the plains, the only thing that is flat in Colorado is the income tax rate. Colorado became a flat tax state in 1987 and has a flat income tax rate of 4.55% (the approval of Proposition 116, which appeared on the November 2020 ballot, reduced the rate from 4.63% to 4.55%). TABOR limits how much its revenue can grow from year-to-year by lowering the tax rate if revenue growth is too high. For example, in 2019, this resulted in a rate reduction to 4.5%. Colorado is only one of nine states in the US with a flat income tax. The others are Illinois, Indiana, Kentucky, Massachusetts, Michigan, North Carolina, Pennsylvania, and Utah. Only Indiana, Michigan, and Pennsylvania have a lower flat tax than Colorado. However, none of these states have a taxpayer’s bill of rights (TABOR) like Colorado does.
Denver and a few other cities in Colorado also impose a monthly payroll tax.
Tax Breaks for Other Retirement Income
For 2020, taxpayers under age 55 can exclude up to $7,500 of income from a military retirement plan. This exemption increases to $10,000 for 2021, and to $15,000 for 2022 and 2023.
Railroad Retirement benefits are also exempt.
Colorado has a 2.9% state levy. Localities can add as much as 8.3% to reach over an 11% sales tax in some jurisdictions, although the average combined sales tax rate is 7.72% in Colorado, according to the Tax Foundation.
Groceries: Generally exempt (local jurisdictions may vary.)
Motor Vehicles: Taxable
Prescription Drugs: Generally exempt (local jurisdictions may vary.)
Residents 65 and over (or the surviving spouse of a senior who previously qualified) are eligible to exempt 50% of the first $200,000 of the actual value of a primary residence from property taxes. Applicants must have owned and lived in the home for at least 10 years. Senior citizens and veterans may also qualify to defer payment of their property taxes.
Full-year Colorado residents age 65 or older or disabled, or a surviving spouse age 58 or older, may qualify for the Property Tax/Rent/Heat Rebate and/or the Property Tax Deferral if their single income is less than $15,192 or married combined income is less than $20,518 (for 2019-2020; values are updated every year). Qualified applicants can receive a rebate of up to $600 of their property tax and $192 of their heating expenses paid during the year, either directly or as part of their rent payments. Seniors age 60 and older or those with a disability may apply for the property tax work-off program, which lets them work for the city or county government to pay off a portion of their property taxes.