Does Colorado tax tips and overtime?

Colorado imposes tax on 'modified federal taxable income' — DR 0104 Line 1 is literally federal taxable income from Form 1040 — so a below-the-line deduction reduces the Colorado base automatically unless the legislature adds it back. Colorado did add back the overtime deduction (HB25-1296) but deliberately left the tip deduction alone. The Department of Revenue states it directly: 'No addback is required on the taxpayer's Colorado return for any deduction claimed on their federal return for qualified tips.' The §224 deduction therefore flows through and reduces Colorado taxable income for TY2025 onward with no state legislation required.

Year-split, and the split is the whole story. Because Colorado starts from federal taxable income, the §225 overtime deduction flowed through automatically for tax year 2025 — the 2025 DR 0104 booklet contains no overtime addback line. HB25-1296 (2025 reg. sess., signed May 16, 2025, Ch. 202), Section 6, then decoupled Colorado prospectively: DOR guidance states 'For tax years 2026 and later, an individual who claims a deduction for overtime compensation on their federal income tax return must add back the amount of the deduction on their Colorado return. The addback is required for the full amount of the federal deduction claimed on the taxpayer's IRS Schedule 1-A (Form 1040).' So: allowed for TY2025, added back for TY2026-2028. Note the addback is of the federal deduction amount, not of overtime wages, and HB25-1296 is the subject of a pending TABOR challenge (Advance Colorado), which has not changed DOR's administration to date.