The Colorado Individual Income Tax Return, Form 104, enables recipients of certain pension benefits to exclude from their Colorado taxable income portions of their benefits for which they previously paid Colorado income tax. [§39-22-104(4)(c), C.R.S.] There is no age limitation for this subtraction. If a taxpayer received pension benefits, they might be able to use this subtraction if:
- employee contributions were made to the Public Employees Retirement Association (PERA) any time between July 1, 1984 and December 31, 1986 and PERA benefits are received during the current tax year, or
- employee contributions were made to the Denver Public Schools Retirement System (DPSRS) any time between Jan. 1, 1986 and Dec. 31, 1986 and DPSRS benefits are received during the current tax year.
These contributions were subject to state income tax in the years they were made, but were tax-deferred for federal income tax purposes. This means federal income tax must be paid when receiving benefit payments upon retirement or termination. The subtraction on the Colorado return enables a taxpayer to subtract from taxable income the amount of pension benefits on which state income tax was already paid.
NOTE: If a taxpayer’s total federally taxable pension income from all sources is less than $20,000 and the taxpayer is 55-64 years of age, or if the federally taxable pension from all sources is less than $24,000 and the taxpayer is 65 years of age or older, STOP! A taxpayer will not need to use this subtraction because all of their pension income is fully excludable for Colorado income tax purposes under the regular $20,000/$24,000 pension subtraction.
The subtraction does not apply to a taxpayer if:
- they began receiving PERA benefits before July 1, 1984 or DPSRS benefits before January 1, 1986, or
- they excluded the total amount of previously taxed contributions on Colorado income tax returns in prior years.
For more information, see FYI 16 on the Colorado website.