In 2025, Colorado residents may be able to expect a considerable amount in tax refund due to surplus state revenues. And with both tax rate cuts and TABOR rebates, residents can look forward to monetary relief next year. So, here is all you need to understand about the next refunds, how much to expect, and if you qualify.
What is TABOR?
The Taxpayer’s Bill of Rights, abbreviated as TABOR, is a constitutional amendment that was passed by the residents of Colorado in the year 1992. TABOR comes up with guidelines that reduce the amount of tax revenues that any one state is permitted to earn in a given year. In the case where the revenues surpass these limits, the state is bound by law to return the excess revenue back to the taxpaying citizens. While it is better to remove excess funds and send them back to the taxpayers, this also establishes a ‘TABOR refund’ where citizens get back funds in case of any unspent amounts by the government.
For the year 2024, revenue collected by the state of Colorado was over the TABOR level by roughly $1.7 billion. Consequently, all the taxpayers in the state will receive refunds in the year 2025.
How much excess revenue did Colorado collect?
As noted in a report published by the Colorado Office of State Auditor, the state managed to generate nearly $1.4 billion above the amount of revenue permissible in the state’s Taxpayers’ Bill of Rights (TABOR) during the financial year commencing in 2024. Together with unallocated resources from the previous year, the overall excess revenues amounted to around $1.7 billion. Such excess has called for a refund mechanism and appropriate measures will be put in place so that the excess is not retained by the state but repaid to the taxpayers.
The executive director of the Colorado Future Center at Colorado State University, Phyllis Resnick said, “When a state collects greater revenue than provisioned in TABOR, there is a requirement to refund the revenue back to the People of Colorado.” Taxpayers are expected to receive a refund as well as enjoy a decrease in the rate of income tax reclaiming that year.
How much will you get back?
The amount of your TABOR refund will depend on your income level and filing status. Here’s a breakdown of the expected refunds for tax year 2024:
For single filers, the average refund will be $326, while joint filers can expect an average refund of $652. These figures are based on income levels, and the exact amount may vary slightly based on individual tax circumstances.
Tax rate reduction coming in 2024
In addition to the TABOR refund, Colorado taxpayers will see a reduction in the state income tax rate for 2024. Governor Jared Polis signed a law earlier this year adjusting the refund mechanisms under TABOR, which also allows for a tax rate reduction. As a result, the state income tax rate will drop from 4.40% to 4.25% in 2024.
This reduction is triggered by the state exceeding a $1.5 billion revenue benchmark, allowing taxpayers to benefit from both a refund and lower tax rates. However, this benefit is expected to be short-lived due to changes in legislation.
Will TABOR Refunds Continue in the Future?
Although it is anticipated that the year 2025 will be good for taxpayers in Colorado, the further TABOR refunds may not be that reliable. The Office of the State Auditor has indicated that the new legislation adopted in the 2024 legislative session will more probably cut down or do away with refunds in the coming years. In addition, specific tax credits, such as those for families with children and older citizens, were funded after Colorado Governor Polis signed 22 bills creating or extending existing tax credits and deductions and sending the surplus revenue towards such expenses.
These reforms are likely to lower the state’s income tax revenue forecast by between $405 million and $1.08 billion each year within the forecast window. From 2026 onwards, the income tax rate is expected to grow once more, reaching 4.33% in 2026 and once again in 2027. In addition, the refunds that will be given under the TABOR for the tax year 2025, which will be filed in the year 2026, are also forecasted to be significantly lower where the individual taxpayers will receive a maximum of $41 and married couples a mere $82.
What Should Colorado Taxpayers Expect?
Colorado residents who pay taxes can look forward to a major refund come 2025, thanks to the state having collected $1.7 billion more revenue than it needed. Besides the refund, a lower state income tax rate would provide further relief. However, be ready for leaner refunds — or no refunds at all — in the subsequent years due to legislative changes on the management of excess revenue.
As of now, taxpayers can relish the promise of a TABOR refund and a tax rate cut, but it will be prudent to keep abreast of any developments that may have a negative impact on your taxes over the long term.
