Colorado residents expecting smaller tax bills or bigger refunds this year may be in for a surprise, according to Betty Jackson, professor of accounting and chair of accounting and business law at the University of Colorado at Boulder's Leeds School of Business.
"The bottom line is that state tax bills will be up this year," Jackson said, noting that deductions contingent on the state budget being in surplus have been eliminated.
"Examples of this are the earned income tax credit, expanded child care credit and child tax credit, charitable contributions in excess of $500 for taxpayers who do not itemize, credit for health benefit plans for taxpayers not covered by an employer plan, and the interest, dividend and capital gains deduction," she said.
There will be no TABOR surplus for 2002 or 2003, so there won't be any reduction in state taxes for the sales tax refund.Ìý
The state's Web site explains: "Colorado's budget did not have the surplus funds necessary to make this refund available. The refund will be made available again in future years when Colorado's general fund reaches surplus levels. Colorado income tax refunds and property tax/rent/heat rebates will be issued as normal for 2002."
While federal tax rates are down slightly, employer withholdings have probably already adjusted for the change and consequently many people may find they owe as much or more than in previous years, Jackson said.
A few changes will benefit some taxpayers on their 2002 returns. These include new rules on higher education expense deductions and student loan interest, as well as section 529 plans. "Qualifying distributions are not subject to tax at the point of withdrawal," she said.
K-12 teachers may deduct up to $250 in expenditures for classroom materials, she said. "This is available 'above the line' - that is, you get this deduction even if you don't itemize deductions."Ìý
Also, annual limitations on IRAs and other tax-deferred retirement plans have been increased. "Dollar amounts depend on the plans and, in some cases, on the taxpayer's age. The Republican plan is to increase limits even more, so watch for announcements if the tax bill passes," Jackson said.Ìý
The state is offering amnesty for those who owe back taxes due on or before Dec. 31, 2002. During the period from June 1 to June 30, individuals and businesses will have the chance to pay state back taxes without penalty or prosecution, and at half the usual interest rate for those who qualify.
However, the amnesty program does not apply to 2002 income taxes that are due April 15.