Colorado Credit For Tax Paid to Another State – General
Colorado resident individuals may claim a credit on their Colorado individual income tax return for income tax paid to another state for the same tax year. This credit is designed to prevent double taxation on income earned in another state. However, nonresidents are not eligible to claim this credit.
Eligibility and Requirements
- Only Colorado residents may claim the credit.
- The credit applies only to taxes paid to another state on income derived from sources in that state.
- Income is considered sourced in another state if it is attributable to:
- Ownership of real or tangible personal property in that state.
- A business, trade, profession, or occupation carried on in that state.
- A partner’s distributive share of partnership income sourced in that state under Colorado law.
How to Calculate the Credit
The allowable credit is calculated by multiplying the gross Colorado tax by a percentage. This percentage is determined by dividing the modified Colorado adjusted gross income (AGI) from sources in the other state by the total modified Colorado AGI.
Example Calculation:
- Gross Colorado tax: $1,584
- Modified Colorado AGI from sources in the other state: $6,000
- Total modified Colorado AGI: $48,000
- Percentage: $6,000 ÷ $48,000 = 12.5%
- Allowable credit: $1,584 × 12.5% = $198
Documentation Required
- Taxpayers must submit a copy of the return filed with each other state, or at least the portion relevant to determining the credit.
- Partners or shareholders claiming a credit for their distributive or pro rata share of tax paid by a partnership or S corporation must provide a copy of the statement given to them by the entity.
Statutory Basis
The credit is governed by §39-22-108, C.R.S. (Colorado Revised Statutes). This statute outlines the rules and limitations for claiming the credit for taxes paid to other states.
Source:
Credit for Tax Paid to Another State
Individual Income Tax Guide
Disclaimer: Always verify with Federal or State Department of Revenue Forms and Instructions for the most accurate and up-to-date information.