Coloradans miss out on millions in unclaimed tax benefits each year. A new law aims to change that.

Each year, Coloradans lose out on hundreds of millions of dollars in unclaimed federal tax benefits meant to stem poverty and help families make ends meet. 

Now, a new state law aims to put more of that unclaimed money into people’s pockets — by directing the Colorado Department of Revenue to persuade more residents to file their tax returns.

The goal of the pilot program, which the law says must launch by Aug. 15, 2025, is to help thousands of Colorado households receive funds they’re owed, but that they don’t know they are eligible for.

“I think it’s so clear that poverty is a policy choice and it’s a tragedy that in the wealthiest nation in the world, we still have folks that struggle to make ends meet,” said state Rep. Manny Rutinel, a Commerce City Democrat and sponsor of House Bill 1288, which passed this year and created the pilot program. “Hopefully, this takes us in a better direction.”

House Bill 1288 requires the Colorado Department of Revenue to help up to 100,000 Colorado households file or amend a federal or state income tax return, or both, and claim the federal or state earned income tax credit, or the federal or state child tax credit, or even all four of those, for up to two previous tax years.

The move will help Coloradans who participate access some of the largest tax credit programs available.

Program participants, especially those with children and very low incomes, could receive more than $10,000 through the program in some cases, the largest lump sum of money many Coloradans receive all year.

The Colorado Department of Revenue must also select and work with a “third-party entity” that will help it identify eligible Colorado households and persuade them to opt into the program. 

The third-party agency would then prepopulate federal and state tax forms for each participant, using wage data and other information already kept by the Department of Revenue, and then submit the forms to the Department of Revenue or the Internal Revenue Service.

The pilot initiative will launch while Colorado has increasingly lagged behind most other U.S. states for its number of residents who are eligible to receive the federal earned income tax credit but don’t participate in the program, a problem always, but especially amidst the housing and affordability crisis, said several people interviewed for this story.

Legislators and other advocates who helped create House Bill 1288 said the intention of the law is to help lift Coloradans out of poverty and help them see that they can receive sizable refund checks from filing their taxes and by applying to receive money from tax credit programs.

The funds are so substantial that many families with low incomes plan their year around their refund checks to help themselves pay for food, rent, health care, child care, car payments, utilities and other important expenses. As a result, tax credits can help improve health, generational wealth and educational attainment for adults who receive them and their children.

Tax credits also have a “multiplier effect.” Each dollar a family receives from an earned income tax credit can equal up to $2 in economic activity where they live, which can help stimulate local economies, said Kathy White, executive director of the Colorado Fiscal Institute.

Coloradans who receive notices in the mail informing them about the pilot initiative will be curious about the program, Rutinel said. “So, it’s important to boost awareness about this issue to increase the effectiveness of the program.”

“This is personal for me,” he said. “For a lot of folks, tax season isn’t the happiest time of year, but growing up, I saw firsthand what the power was when my single mom was able to access these important entitlements and how much that helped us stay afloat.”

State leaders appropriated $167,585 from the general fund to the Department of Revenue for fiscal year 2024-25 to implement the requirements of House Bill 1288, which passed May 14.

The law does not specify how the Colorado Department of Revenue should prioritize the Colorado households that participate.

The department should focus on prioritizing Colorado households that have at least one child and earn less than $50,000 per year, said one leader at a Colorado organization working to reduce poverty, who spoke on background.

Lifting people out of poverty

There are many reasons why people don’t file their taxes. People might think they would owe the government money after submitting their income tax return or they may be distrustful of, or intimidated by, the Internal Revenue Service or other powerful government agencies that collect money and enforce laws.

Others may be confused by, or unfamiliar with, the tax filing process, including immigrants and people who are not required to submit a tax return because their income is below the filing threshold.

Some workers who have multiple jobs may feel it’s too burdensome to collect all of the wage data needed to fill out tax documents, while others may not know they could work with a tax preparer to help them.

Many people who are eligible for tax credits, likewise, don’t apply to receive them because they may be unaware the programs exist. Or the credit’s complexity may make them reluctant. 

This year, the maximum amount a person with no children can receive is $632 through the federal earned income tax credit program. A person with one child can receive up to $4,213 through the program, an adult with two kids can get up to $6,960 and a person with three kids can get up to $7,830.

This year, Coloradans who receive money from the federal earned income tax credit will qualify for a state earned income credit equal to half of their federal credit.

The federal child tax credit generally gives a parent up to $2,000 for each of their qualifying children. 

The maximum amount of money a person could earn through the state child tax credit program is $1,200 per qualifying child, if the recipient makes less than $25,000 per year. That number drops to $600, if the recipient makes $25,000 to $50,000 and decreases to $200 if the recipient makes between $50,000 to $75,000.

The new family affordability tax credit, passed by the state legislature this year, intends to supplement the state and federal child tax credits, and will do even more to help families with children meet the high costs of living across the state, White wrote in an email to The Colorado Sun.

The federal earned income tax credit and federal child tax credit lifted 10.6 million people above the supplemental poverty measure and made poverty less severe for 17.5 million others in 2018, according to the federal Center on Budget and Policy Priorities. 

“The earned income tax credit is one of the federal government’s largest refunds and it’s the second largest anti-poverty tool we have in this country, aside from social security, in terms of how many people it lifts out of poverty per year,” said Kristin Hubbard, director of Tax Help Colorado at Mile High United Way, the largest free tax filing program in the state where volunteers filed more than 9,700 tax returns this year from January through April, which helped Coloradans receive $19 million in refunds.

Tax breaks are important for many reasons, and yet, the Internal Revenue Service estimated about 5 million potentially eligible American taxpayers do not claim the federal earned income tax credit each year, meaning more than $7 billion in benefits are unclaimed annually, according to a report by the Treasury Inspector General for Tax Administration.

The Internal Revenue Services also estimated that 1.7 million people who were eligible for that credit but did not receive it, had filed their taxes while the other 3.3 million people did not file a federal tax return, according to the report.

Colorado lost out on $785 million in federal earned income tax credits and federal child tax credits that went unclaimed in 2021, according to a Colorado Fiscal Institute analysis of most recent tax return data.

The Economic Security Project estimates that 750,000 to 2.6 million households are missing out on the federal child tax credit, which suggests 15,000 to 52,000 Colorado households may not be receiving that credit.

If just 10% more eligible Colorado families received the federal earned income tax credit, the move would bring almost $80 million dollars into the state, according to the Colorado Fiscal Institute’s analysis.

Money that is unclaimed from tax refunds and tax credit programs sits in state and federal government general fund budgets and is used, as all other income taxes are used, for things like education, health care, infrastructure and social programs, White said.

“This means families and communities leave hundreds of millions of dollars on the table,” White said.

People who are eligible for a tax break from the federal earned income tax credit, but don’t participate, are more likely to be those who are recently divorced, self-employed or unemployed, living in rural areas, non-Native English speakers, grandparents raising grandchildren, those experiencing changes to their financial or parental status and families that have at least one person with a disability included in them, according to Internal Revenue Service researchers. 

The state should increase funding for expanding current programs that offer free tax filing support to low and middle-income families in Colorado, Caroline Nutter, a legislative coordinator at the Colorado Fiscal Institute, wrote in an email to The Colorado Sun.

A campaign to encourage people to file their taxes

Derek Kuhn, a spokesperson for the Colorado Department of Revenue, said the state is aware that some people avoid filing taxes, for many reasons. But the department has resources to help, he said. 

“We understand that filing taxes can feel scary in many cases, such as when an individual does not have a social security number or is nervous about owing taxes,” Kuhn wrote.

“Non-filers without a Social Security number can file if they obtain an Individual Taxpayer Identification Number,” he wrote. “Colorado offers many resources including our Volunteer Income Tax Assistance sites located across the state and the department’s Revenue Online free filing tool for state returns.”

The Department of Revenue wants to make filing Colorado taxes easier and is compiling a complete list of Colorado tax credits and subtractions, he wrote.

MORE: The Get Ahead Colorado campaign led by the Colorado Department of Public Health and Environment and the Colorado Department of Revenue helps Coloradans file their taxes and claim tax credits. The Colorado Department of Revenue also has a team training and educating the public about taxes to help Coloradans save money and to encourage tax compliance.