- On a federal level, Social Security pensions only become taxable when a pensioner earns income from another source that exceeds levels the IRS sets for married and individual taxpayers. The Colorado Department of Revenue uses the same modified adjusted gross income calculation, considering pensions, unearned and earned income, to determine if Social Security pensions are taxable. The IRS and Colorado Department of Revenue assess income taxes against a portion of your benefits if you earn more than $25,000 and are single, $32,000 if filing jointly, or if you had any income and are married and filing separately.
- The Colorado Department of Revenue allows retirees to claim a pension subtraction amount to reduce their taxable pension income. Taxpayers older than 65 can subtract $24,000 from their pension income before they calculate their state taxes. Those between 55 and 65 may claim a pension subtraction of $20,000. Colorado’s pension subtraction allowance applies to all forms of pensions and retirement fund distributions, so a 66-year-old who receives $20,000 in Social Security benefits and $20,000 in a distribution from his IRA still owes Colorado taxes on $16,000 of his pension income.
- The IRS determines if Social Security Disability Insurance – usually known as SSDI – is taxable using the same standards it uses to determine taxation of pension benefits. Individual taxpayers with gross benefits and unearned income above $25,000 or married taxpayers who report more than $32,000 must declare a portion of SSDI benefits as taxable income when they figure their adjusted gross income for their federal taxes. Because Colorado uses the adjusted gross income calculated on taxpayer’s federal Form 1040 as its starting point when it calculates its tax basis, SSDI benefits may be taxable by the state.
- Supplemental Security Income, benefits the Social Security Administration provides to individuals over 65, blind or disabled and who meet low-income tests, is not considered taxable income by the IRS, and is not reported on taxpayers’ federal Form 1040. Again, because Colorado uses federal adjusted gross income as its foundation for income taxes, these benefits don’t roll over into the state’s taxable income.