Colorado won't offer tax break on overtime pay
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President Trump's "big, beautiful bill" would make some overtime pay exempt from federal income taxes.
Yes, but: Colorado won't do the same.
State of play: State lawmakers tucked a little-noticed provision into a lengthy tax bill earlier this year to decouple from federal law when it comes to overtime pay, starting in the 2026 tax year paid in 2027.
- This means you'll have to pay Colorado's 4.4% income tax on overtime wages, state legislative analysts confirmed, even with a federal exemption.
Context: Colorado typically aligns with federal tax law, meaning if there are tax exemptions at the federal level, they would apply to state taxes. In this case, the state decided to break from federal law if the spending bill passes.
What they're saying: Rep. Lorena Garcia, the Democratic lead sponsor of the tax bill, said the state didn't want to lose that existing revenue.
- "Whatever the Trump administration does, we are protecting Colorado by decoupling that," she told us.
The fine print: Not all overtime workers would benefit from Trump's bill.
- The exemption on overtime wages only applies to workers who must be paid time-and-a-half when they exceed 40 hours. Salaried workers are not eligible.
What we're watching: If Trump signs a law exempting taxes on tips, Colorado law would follow suit unless lawmakers make changes in the future.