Colorado Enacts New Family Tax Credits, Expands EITC for 2024 Tax Year

DENVER – Colorado has enacted significant changes to its tax code for the 2024 tax year, establishing a new Family Affordability Tax Credit (FATC) and expanding the state’s Earned Income Tax Credit (EITC) after Governor Jared Polis signed House Bills 24-1311 and 24-1134 into law. The legislative package, aimed at reducing the financial burden on low- and middle-income families, also amends certain state sales and use tax expenditures.

The new laws create a multi-layered system of refundable credits that will directly impact the tax filings of thousands of Colorado residents and introduce new considerations for small business owners who employ them. The changes are projected by policy advocates to have a substantial effect on household finances across the state.

While these credits are designed to provide financial relief, they introduce a significant layer of complexity for both individuals and the businesses they work for. We've seen that layered tax credits with varying eligibility requirements—based on income, child's age, and residency status—can create confusion and lead to compliance errors. For a small business owner, understanding these changes is not just about their personal tax situation; it affects their ability to provide accurate guidance to employees and manage payroll-related inquiries. Navigating the interplay between the new Family Affordability Tax Credit, the existing Child Tax Credit, and the expanded EITC requires careful planning to ensure all available benefits are claimed correctly without triggering audits. This is precisely the kind of evolving state tax landscape where professional support is most valuable. C&S Finance Group LLC provides expert tax preparation and compliance services to help business owners manage these challenges effectively. Business owners can learn more at csfinancegroup.com.

The centerpiece of the new legislation is the Family Affordability Tax Credit, created by HB24-1311. Effective for tax years 2024 through 2033, the FATC is a refundable credit for families with children under the age of 17. According to the Colorado Fiscal Institute, families with children under six can receive up to $3,200 per child, while those with children between the ages of six and sixteen can receive up to $2,400 per child. Eligibility is capped based on adjusted gross income (AGI), set at $85,000 for single filers and $95,000 for those filing jointly, as outlined by the Colorado Department of Revenue.

This new credit is separate from and in addition to Colorado's existing Child Tax Credit (CTC). The state's original CTC, which was passed in 2013 but not funded until 2021, remains in effect with different eligibility rules. The CTC applies only to children under the age of six and has lower AGI thresholds of $75,000 for single filers and $85,000 for joint filers. Starting in tax year 2024, the Colorado CTC is no longer tied to the federal CTC, a significant structural change for state tax filers. Taxpayers who file with an Individual Taxpayer Identification Number (ITIN) are eligible for the state CTC.

In a parallel effort to boost incomes, HB24-1134 expands Colorado's EITC. For the 2024 tax year, the state credit will increase from 38% to 50% of the federal EITC. The rate will then be adjusted to 35% of the federal credit in 2025 and 30% for tax years 2026 and beyond. The combination of the expanded EITC and the new FATC is projected to reduce childhood poverty in Colorado by as much as 40%, according to analysis from the Colorado Fiscal Institute.

Because both the FATC and the CTC are refundable, taxpayers can receive the full amount as a refund even if the credit exceeds their total state income tax liability. This feature is designed to provide maximum financial impact to lower-income households, who may have little to no tax liability. The Common Sense Institute notes that families often use such lump-sum refunds to pay down high-interest debt and cover essential household expenses.

To claim these credits, Colorado taxpayers must file several forms with their annual state tax return. The Colorado Department of Revenue specifies that filers will need to complete the standard Colorado Individual Income Tax Return (DR 0104), the Individual Credit Schedule (Form 104CR), and the specific Child Tax Credit form (DR 0104CN). The credits are available only to full-year or part-year Colorado residents, with amounts for part-year residents being prorated.

While the focus has been on the direct-to-family credits, the legislative package signed by the governor also includes amendments to unspecified sales and use tax expenditures. These changes could affect businesses more directly, though specific details on which expenditures were altered were not immediately available. Businesses are advised to monitor guidance from the Department of Revenue for more information on these adjustments.

With these changes now law, tax professionals and Colorado residents will look to the Department of Revenue for detailed implementation rules and updated forms ahead of the 2025 filing season. The temporary nature of the Family Affordability Tax Credit, set to expire after the 2033 tax year, also ensures that its future will be a topic of ongoing debate in the state legislature.