Colorado Cuts State Tax Credits for 2027; EITC Halved, Family Affordability Credit Paused
Colorado announced that beginning with tax year 2026 (filed in 2027), the state will reduce its Earned Income Tax Credit from 50% to 25% of the federal level and pause its Family Affordability Tax Credit due to projected revenue shortfalls.
Colorado's Department of Revenue has announced significant cuts to two major state tax credits that will take effect on tax returns filed in 2027 for tax year 2026 income. The Colorado Earned Income Tax Credit (EITC) will be reduced from 50% of the federal EITC amount to 25% in Tax Year 2026. Additionally, the state will temporarily pause the Family Affordability Tax Credit for tax year 2026.
Who Is Affected
These changes will affect hundreds of thousands of Colorado taxpayers who have dependent children under the age of 17, with families likely facing smaller refunds in calendar year 2027. The impact will be most severe on lower-income households, as these credits are designed to support working families and those with modest incomes.
The Family Affordability Tax Credit phases out for families earning around $95,000 annually, while the Colorado EITC phases out for families earning around $65,000 annually. In past years, some families with the greatest financial need received more than $7,000 from these combined credits.
Why the Changes
The adjustments are necessary due to current state revenue projections and a tough fiscal outlook. The Family Affordability Tax Credit is turned off in years where revenue projections fall below a threshold growth rate and resumes when projections anticipate revenues will exceed that rate.
What This Means for Expats and Families in Colorado
If you live in Colorado with dependent children and have worked there, you should revise your budget expectations for your 2027 tax refund. The credit reductions will apply only to tax year 2026, filed in early 2027—your 2025 returns (filed in 2026) are not affected. Families who previously relied on combined credits of $5,000–$7,000 may see refunds reduced by 50% or more. Begin adjusting household finances now and consider consulting a tax professional to understand the exact impact on your filing.
Sources
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