The process of paying tax is many people’s worst nightmare, especially as it involves thousands of dollars coming out of your account, either all at once or gradually over the course of a year.
However, taxpayers in Colorado are set for a big payout in tax refunds after an accounting error wrongfully took $67 million more than necessary.
Colorado Isn’t the Only State to Receive Tax Refunds
It’s not just taxpayers in Colorado who are set to receive a big refund.
Taxpayers throughout the US are set to receive over $1 billion in refunds from the IRS from the tax year ending 2021, including the 2020 Recovery Rebate Credit.
Taxpayers Receive Refund Under TABOR
TABOR is the Taxpayers Bill of Rights, which includes the right to a tax refund for excess revenue.
It also allows taxpayers to approve new tax laws and limit revenue growth.
A Colorado Health Insurance Company Made the Tax Mistake
The Health Insurance Affordability Enterprise was established in 2020 to make health insurance more affordable for Colorado residents.
The company treated money received as exempt under TABOR, which was not the case. Thus, taxpayers received a $67 million higher refund than expected.
Taxpayers Pay 2% Tax on Health Insurance
Residents of Colorado with state-regulated insurance plans pay 2% in tax on their premiums to fund the Health Insurance Affordability Enterprise.
It hadn’t been clear whether this money should count toward the TABOR limit, but the Attorney General’s Office made it clear that it does.
Health Enterprise Gets Money From the State General Fund
One main issue came from the Health Insurance Affordability Enterprise getting money from the state general fund.
However, the government isn’t allowed to move money from the state general fund and calls it a TABOR-exempt fee, where the problem first arose.
Colorado’s State Budget Bill Has Been Signed
Another issue from this mistake is that the 2025 Colorado Budget Bill has already been signed.
This means there are already issues with the budget as this $67 million will have to be paid from the budget, and it wasn’t accounted for when the bill was signed.
The Colorado Budget Has Broken Down Spending for Each Area
The overall budget for 2025 in Colorado is $41 billion.
This bill gives the Colorado government $2 billion more in spending, which is divided among areas such as education, affordable housing, healthcare, and public safety.
The Joint Budget Committee Has Made Some Recommendations
The Joint Budget Committee has given two recommendations for how this problem can be dealt with.
The options are to either eliminate the insurance premium to the HIA or to temporarily reduce the general fund reserve.
Eliminating the Insurance Premium to the HIA
Eliminating the insurance premium to the HIA means the insurance premium revenue will flow to the General Fund.
The General Fund will then be available to pay out the increased TABOR refund obligation. However, only $33 million will be available this way.
Temporarily Reducing the General Fund Reserve
Temporarily reducing the general fund reserve will free up the funds to pay for the under-refunds from previous years.
Doing this would also mean there would be minimal disruption to the 2025 budget plan.
The Government Is Against Raising Health Insurance Premiums
One thing taxpayers ought not to worry about is the Colorado government raising health insurance premiums.
It is Republicans, in particular, who are against raising this tax as the public already pays enough for healthcare. Taxpayers will eventually get the $67 million back, but how this will be done, bearing the budget in mind is currently unknown.
