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HB 1001

Qualified Business Income Deduction Add-Back

2025 First Extraordinary Session

Colorado now requires businesses to add back federal Qualified Business Income deductions when calculating state income taxes, increasing taxes on pass-through entities and self-employed individuals.

Governor Signed
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Bill Summary · HB 1001

Legislative bill overview

HB 1001 requires Colorado taxpayers to add back a portion of their federal Qualified Business Income (QBI) deduction when calculating Colorado state income tax liability. This means businesses that benefited from the federal QBI deduction (typically available to pass-through entities like S-corps, partnerships, and sole proprietorships) will pay higher state taxes on that same income.

Why is this important

This bill effectively increases the state tax burden on small business owners and self-employed individuals by eliminating a federal tax benefit at the state level. The measure generates additional revenue for Colorado's state budget while creating a disconnect between federal and state tax treatment of business income—something businesses must now account for in their tax planning.

Potential points of contention

  • Disproportionate impact on small businesses: Pass-through entities and self-employed individuals may face higher effective tax rates compared to C-corporations, potentially affecting business competitiveness and investment decisions
  • Tax complexity: The add-back requirement creates an additional calculation step and compliance burden, requiring taxpayers to track federal QBI deductions separately for state purposes
  • Revenue vs. economic growth trade-off: While the state gains revenue, critics argue this could discourage business formation or expansion in Colorado, while supporters contend the revenue is needed for public services

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

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