The starting point for determining state income tax liability is federal taxable income. This number is adjusted for additions and subtractions (deductions) that are used to determine Colorado taxable income, which is then multiplied by the state's income tax rate.
For income tax years commencing before January 1, 2024, current law allows individuals younger than 55 years of age to deduct from federal taxable income certain amounts received from military retirement benefits. For income tax years commencing on or after January 1, 2022, but before January 1, 2024, current law caps the deduction at $15,000. The bill extends the deduction indefinitely and, beginning in the income tax year commencing on January 1, 2024, requires that the $15,000 cap be annually adjusted for inflation.
(Note: This summary applies to this bill as introduced.)