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Colorado State Income Tax Exemption

 

Summary:  The state of Colorado recently passed House Bill 15-1181 that allows members with a state of legal residence of Colorado who change to another state of legal residence and then back to Colorado to be exempt from state income tax.  The state of Colorado must have been the member’s home of record upon entry into military service; then the member must have a different state of legal residence some time on or after January 1, 2016; and then the member must have reacquired Colorado as the state of legal residence at some time on or after January 1, 2016.  This law applies to members who fit these criteria and serve on active duty as defined in 37 USC 101(18) (see specific types of pay that are/are not exempt, below). There are no current plans to terminate this exemption; however, members need to stay aware of state income tax law changes which could change exemptions.

Specific types of pay that are exempt if the criteria in the first paragraph are met:

  • Pay for full-time duty in the active service of a uniformed service
  • Full-time training duty
  • Annual training duty
  • full-time National Guard duty and attendance, while in the active service, at a school designated as a service school by law or by the Secretary concerned.

Specific types of pay that are not exempt if the criteria in the first paragraph are met:

  • Pay for cadets, midshipmen, ROTC, College First, and medical stipends (including Nurse Candidate Continuation bonuses which are considered to be a medical stipend)
  • Drill pay
  • ROTC pay of dual status members.

Procedure:  Members who qualify for this exemption may use myPay to claim exemption from Colorado state income tax withholding (SITW).  If you do not have access to myPay, you may submit an Internal Revenue Service (IRS) Form W-4 with “state” written across the top to your finance office to claim exemption