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SB 25-136

Expand Deduction For Retirement Benefits

2025 Regular Session Introduced by Ryan Gonzalez and 1 co-sponsor

SB 25-136 aimed to eliminate caps on retirement income tax deductions for those 55+, potentially saving 587,000 taxpayers an average of $875, but was postponed indefinitely.

Senate Committee on State, Veterans, & Military Affairs Postpone Indefinitely
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Bill Summary · SB 25-136

Summary of SB 25-136: Expand Deduction For Retirement Benefits

Bill Information:
- Bill Number: SB 25-136
- Title: Expand Deduction For Retirement Benefits
- Status: Postponed Indefinitely by the Senate Committee on State, Veterans, & Military Affairs
- Introduced: February 5, 2025
- Classification: Legislative Bill

Purpose and Intent

SB 25-136 aimed to expand the state income tax deduction for retirement benefits, specifically for taxpayers aged 55 and over. The bill sought to provide greater tax relief by removing existing caps on pension and annuity income deductions, thereby allowing individuals in this age group to deduct all federally taxable pension and annuity income when calculating their Colorado taxable income.

Key Provisions

  • Current Law:

    • Taxpayers aged 55 to 64 can currently deduct up to $20,000 of pension and annuity income.
    • Taxpayers aged 65 and older can deduct up to $24,000.
    • There are provisions for full deductions of federally taxable Social Security income for certain income levels.

  • Proposed Changes (Effective Tax Year 2026):

    • The bill proposed to remove all caps on pension and annuity income tax deductions for taxpayers aged 55 and over.
    • This would allow these individuals to deduct the entire amount of their federally taxable pension and annuity income, regardless of age or income level.

Impact

Fiscal Implications

  • State Revenue Reduction:

    • Estimated to reduce state income tax revenue by $256.7 million in FY 2025-26 and $523.4 million in FY 2026-27.
    • The revenue reduction is expected to increase in subsequent years due to population growth and rising average deductions.

  • TABOR Refunds:

    • The bill was projected to decrease the amount of state revenue required for TABOR refunds, affecting the General Fund and other allocations.

Affected Parties

  • The bill would primarily benefit taxpayers aged 55 and older who receive pension and annuity income, potentially impacting approximately 587,000 taxpayers who could save an average of $875 in income tax.

Administrative Considerations

  • The Department of Revenue anticipated a minimal increase in workload to adjust the GenTax system for the new deduction structure, which could be managed within existing resources.

Procedural Aspects

  • The bill was introduced and assigned to the Senate Committee on State, Veterans, & Military Affairs but was ultimately postponed indefinitely on February 27, 2025. This means that the proposed changes will not take effect, and the current law remains in place.

Conclusion

SB 25-136 represented an effort to enhance tax relief for older taxpayers in Colorado by expanding deductions on retirement benefits. However, due to its indefinite postponement, the bill will not move forward, and the existing tax structure will remain unchanged.

Compiled from official sources — confirm details with the bill’s official record.

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