Colo. Code Regs. 39-22-104(3)(d)

Current through Register Vol. 47, No. 16, August 25, 2024

Rule 39-22-104(3)(d) - State Income Tax Addback

Basis and Purpose. The statutory bases for this rule are sections 39-21-112(1), 39-22-104(3)(d), 39-22-202, 39-22-203, 39-22-304(2)(d), 39-22-321, 39-22-322, and 39-22-323, C.R.S. The purpose of this rule is to provide guidance regarding the addition to federal taxable income required for individuals, estates, and trusts for state income taxes, including FAMLI premiums, deducted by the individual, estate, or trust or by a partnership or S corporation in which the individual, estate, or trust is a partner or shareholder.

(1)General Rule. For Colorado income tax purposes, each individual, estate, or trust must add to their federal taxable income:

(a) any state income tax the individual, estate, or trust deducted pursuant to section 164(a)(3) of the Internal Revenue Code in determining their federal taxable income; and

(b) any amount required by section 39-22-202, -203, -322, or -323, C.R.S., and this rule for the individual's, estate's, or trust's share of the deduction claimed by a partnership or S corporation pursuant to section 164(a)(3) of the Internal Revenue Code for state income taxes.

(2)FAMLI Premiums. Section 39-22-104(3)(d), C.R.S., and this rule apply to any premiums withheld from an individual's wages pursuant to the Paid Family and Medical Leave Act (part 5 of article 13.3 of title 8, C.R.S.) and deducted by that individual as state income taxes under section 164(a)(3) of the Internal Revenue Code in computing the individual's federal taxable income.

(3)Limitation Relating to Itemized Deductions Claimed by an Individual, Estate, or Trust. Section 39-22-104(3)(d)(I), C.R.S., provides that the addition required by that section is limited to the amount required to reduce the federal itemized amount computed under section 161 of the Internal Revenue Code to the amount of the standard deduction allowable under section 63(c) of the Internal Revenue Code.

(a)State Income Taxes Deducted by Individuals, Estates, or Trusts. The amount an individual, estate, or trust must add to their federal taxable income for state income taxes the individual, estate, or trust deducted pursuant to section 164(a)(3) of the Internal Revenue Code in determining their federal taxable income is limited to the amount required to reduce the federal itemized amount computed for the individual, estate, or trust under section 161 of the Internal Revenue Code to the amount of the standard deduction allowable to the individual, estate, or trust under section 63(c) of the Internal Revenue Code.

(b)State Income Taxes Deducted by Partnerships or S Corporations. The limitation described in section 39-22-104(3)(d)(I), C.R.S., and paragraph (3)(a) of this rule relating to section 161 of the Internal Revenue Code does not apply to any addition required for an individual's, estate's, or trust's share of a deduction claimed by a partnership or S corporation pursuant to section 164(a)(3) of the Internal Revenue Code for state income taxes because that deduction is not included in a federal itemized amount computed under section 161 for the individual, estate, or trust.

(4)Partnerships and Partners. Pursuant to sections 39-22-104(3)(d), -202(1), and -203(5)(a), C.R.S., each partner must add to their federal taxable income their share of any state income tax deducted by the partnership for the tax year pursuant to sections 164(a)(3) and 703(a) of the Internal Revenue Code, regardless of the state to which the income tax was paid or accrued. The amount the partner must add pursuant to this rule shall be the partner's distributive share of the deduction claimed by the partnership, determined in accordance with the partner's distributive share, for federal income tax purposes, of partnership taxable income or loss generally.

(5)S Corporations and Shareholders.

(a)Nonresident Shareholders. Pursuant to sections 39-22-304(2)(d), -321(4), -322(2), and -323(1), C.R.S., each nonresident shareholder of an S corporation must add to their federal taxable income their pro rata share of any Colorado income tax deducted by the S corporation for the tax year pursuant to sections 164(a)(3) and 1366 of the Internal Revenue Code.

(b)Resident Shareholder. Pursuant to sections 39-22-104(3)(d), -304(2)(d), -321(4), -322(2), -323(1), and -323(2), C.R.S., each resident shareholder of an S corporation must add to their federal taxable income their pro rata share of any state income tax deducted by the S corporation for the tax year pursuant to sections 164(a)(3) and 1366 of the Internal Revenue Code, regardless of the state to which the income tax was paid or accrued.

39-22-104(3)(d)

47 CR 07, April 10, 2024, effective 4/30/2024