Colorado Bill Modifies Overtime Income Tax for 2026

Detected February 27th, 2026

Summary

Colorado Senate Bill 26-056 proposes to modify the state income tax on overtime compensation, applying the change only to the 2026 income tax year. The bill aims to alter how overtime compensation excluded from federal gross income is treated for state income tax purposes.

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What changed

Colorado Senate Bill 26-056, currently in draft and under consideration, proposes a temporary modification to the state's income tax treatment of overtime compensation. Specifically, the bill would limit the requirement for taxpayers to add back overtime compensation excluded from federal gross income to their state taxable income to only the 2026 tax year. This change affects how overtime earnings are taxed at the state level for a defined period.

For employers and individuals in Colorado, this means that overtime compensation will be treated differently for state income tax purposes in 2026 compared to other years. While the bill is still under consideration, affected parties should be aware of this potential change in tax liability for the upcoming year. The bill has been introduced and is proceeding through the legislative process, with a committee meeting scheduled.

What to do next

Monitor the progress of Colorado Senate Bill 26-056 through the legislative process.
Review internal payroll and tax withholding procedures for potential adjustments related to overtime compensation for the 2026 tax year, should the bill be enacted.

Source document (simplified)

SB26-056

State Overtime Compensation Income Tax

| Type | Bill |
| --- | --- |
| Session | 2026 Regular Session |
| Subjects | Fiscal Policy & Taxes |
Concerning modifying the state income tax on overtime compensation to apply only in the 2026 income tax year.

Recent Bill (PDF) Recent Fiscal Note (PDF) Bill Summary:

The bill modifies the requirement that a taxpayer add the amount of any overtime compensation excluded or deducted from the taxpayer's federal gross income back to the taxpayer's federal taxable income for purposes of calculating state income tax liability to apply only in the 2026 income tax year.

(Note: This summary applies to this bill as introduced.)