Colorado Democrats Introduces $1 Billion Tax Credit: Families To Receive Up To $3,200 Per Child – Here’s when — and how

Colorado Passes Major Benefits for Low-Income Families

Colorado lawmakers have introduced significant new benefits for low-income families this year. These laws will provide families with children and working low-income families with hundreds or even thousands of dollars.

A story from The US Sun highlights that Colorado has passed new tax laws to support families. These changes include an expanded Earned Income Tax Credit and the creation of the Family Affordability Tax Credit. The reforms could provide more than $1 billion annually to those in need.

Families earning less than $20,000 a year can receive up to $3,200 per child through the Family Affordability Tax Credit. This initiative will assist approximately 370,000 families in Colorado, aiming to halve the number of children living in poverty.

The most notable changes include the creation of a new Family Affordability Tax Credit and the expansion of the Earned Income Tax Credit, both recently signed into law by Gov. Jared Polis. These benefits will take effect for the current tax year, with people expected to see the impact when they file their taxes early next year.

In total, these measures could provide well over $1 billion per year to these families in the form of refundable tax credits. This money comes from the TABOR surplus, meaning that instead of refunding payments to all taxpayers, a portion will be used to cover these credits and other changes.

Here are the details of when and how the credits will be paid.

Child Tax Credits in Colorado: When, How Much, and For Whom?

The Family Affordability Tax Credit, also known as the child tax credit, will benefit hundreds of thousands of families with children. For the poorest families with the youngest children, it could be worth up to $3,200 per child. The benefit amount decreases with the child’s age and the family’s income.

This credit is refundable, meaning its full value can be paid out as cash even if the family doesn’t owe any taxes.

Payments will start next year when families file their 2024 taxes, with a deadline of April 15, 2025.

Expanded EITC: Who Benefits and When?

A new law will permanently expand Colorado’s Earned Income Tax Credit (EITC), benefiting working low-income individuals and families. The state’s EITC value is based on the federal version, with Colorado matching a portion of the federal credit. Under the new law, Colorado will match a greater portion, potentially providing some families with several hundred extra dollars, depending on their income and number of children.

The changes begin with the current tax year, but recipients might not see a difference until they receive their refunds in 2025. Currently, the state EITC value is unusually high, and the new law extends this high value for another year. The state EITC will remain at 50% of the federal credit.

Starting in tax year 2026, the state EITC will reduce and stabilize at a new permanent value of 30% of the federal credit, which is significantly higher than the previous baseline.

The new law is expected to cost over $200 million annually, sourced from the TABOR surplus, thus reducing TABOR refunds and drawing similar criticisms as the family tax credit.

Income Tax Cut

Colorado’s current income tax rate of 4.4% will be reduced over the next decade under a bipartisan law. Changes will begin with taxes paid next Tax Day in April. For tax year 2024, the rate will likely decrease to 4.25%, saving about $150 for someone earning $100,000 a year.

The tax rate may fluctuate between 4.25% and 4.4% in the coming years, depending on the economy’s strength and the expected TABOR surplus. A lower tax rate will result in smaller TABOR refunds since less money is being collected.

Source: OMD News

Source: Cpr.org