Colorado voters narrowly approved Amendment 87 (pdf) this week. This means that effective with the 2027 tax year, Colorado will move from a flat 4.4% state income tax to a progressive income tax. Here are the new Colorado progressive income tax rates and brackets.
As a result of these changes, it’s estimated to raise Colorado revenues by about $2 billion annually, which would go toward increasing funding for K-12 schools, healthcare and early childhood programs. How it will impact you will depend, of course, on your taxable income. This article at the Colorado Sun has a nice calculator where you can input your Colorado taxable income to see the difference. The short answer is that anyone with less than about $510,000 in taxable income will pay less, and those with higher incomes will pay more.
I thought it might be interesting to look at the impact on some specific scenarios for Colorado teachers. For the following examples, I used Littleton Public Schools salary schedule and benefits (LPS is one of the highest paying school districts in Colorado). I looked at both single and married teachers, and also made some assumptions about health, dental and vision insurance (I chose the lowest cost option), whether they were covering any children (and whether those children were in daycare), HSA contributions, and pre-tax 401k/457b contributions (assumed 3%). I also added in a little bit of interest/nonqualified dividend income.
You can, of course, devise your own scenarios and make a copy of the spreadsheet and then modify any of those numbers.
You can look at the spreadsheet for all the details, but here is a summary of the six scenarios I looked at.
As you can see (and as expected), all six scenarios show a decrease in the amount of tax owed and an effective tax rate that is lower the the current flat tax rate of 4.4%. Keep in mind that because I chose a high paying district as well as the lowest cost insurance options, these examples are going to be at the high end for teachers in Colorado (meaning most teachers in these scenarios would see even greater differential in effective tax rate). Feel free to use either the Colorado Sun calculator or a copy of my spreadsheet to input your own scenario.
Note: While not a huge difference, this change does make it more complicated to model the impact of various financial decisions on Colorado state income taxes. Therefore all of my previous posts that included any of that modeling will be outdated as of the 2027 tax year. Not a huge deal, but just be aware that any previous modeling will overstate Colorado state income taxes and the impact of various decisions on those taxes.