Income Tax Topics: Credit for Tax Paid to Another State 

Colorado resident individuals may claim a credit on their       Eligible taxes 
Colorado returns for income tax accrued to another state 
for the same tax year. The credit is subject to several 
                                                                The credit is allowed for net taxes accrued to another 
requirements  and  limitations,  discussed  later  in  this 
                                                                state on an individual’s federal taxable income derived 
publication. Nonresidents may not claim the credit. 
                                                                from sources in that state. The following sections discuss 
                                                                qualifying conditions for the credit. 
This publication is designed to provide general guidance 
regarding the credit for taxes paid to other states and to 
supplement  the  guidance  provided  in  the Colorado           State taxes 
Individual Income Tax Guide. Nothing in this publication 
modifies or is intended to modify Colorado’s statutes or        The credit is allowed only for state taxes accrued for the 
regulations. Taxpayers are encouraged to consult their          tax year to one of the following: 
tax advisors for guidance regarding specific situations. 
                                                                ➢ another state in the United States;  
The guidance in this publication applies specifically to 
                                                                ➢
resident  individuals,  but  generally  applies  to  resident     the District of Columbia; or  

estates and trusts as well.                                     ➢ a territory or possession of the United States.  

                                                                Within  this  publication,  the term  “state” is  used  to 
Colorado residency 
                                                                include another state in the United States, the District 
                                                                of  Columbia,  and  any  territory  or  possession  of  the 
The credit for taxes paid to other states is allowed only 
                                                                United States.  
to Colorado residents. Please see Part 1 of the Colorado 
Individual Income Tax Guide  for information about how          The credit is not allowed for taxes accrued to any city, 
Colorado residency is determined.                               local  jurisdiction,  foreign  country,  or  any  subdivision 
                                                                thereof. 
The  credit  is  allowed  to  both  full-year  residents  and 
part-year  residents,  although  part-year  residents  may 
claim the credit only for income earned or recognized           Taxes on income from sources in another state 
from sources in another state while they were a Colorado 
resident. Part-year residents may not claim any credit          The credit is allowed only for state taxes imposed on the 
for taxes paid on income  earned or  recognized during          taxpayer’s income. It is allowed regardless of whether the 
the  part  of  the  year  when  they  were  not  a  Colorado    state imposing the tax refers to it as an income tax, as a 
resident. Please see the section on part-year residents,        gross receipts tax, or by another name. The income must 
later in this publication, for additional information.          be  included  in  the  taxpayer’s  modified  adjusted  gross 
                                                                income for the tax year, discussed later in this publication. 
Taxpayers who are not Colorado residents for any part 
of the year may not claim any credit for taxes paid to          The credit is not allowed for any franchise tax or any 
other  states.  Instead,  Colorado  income  tax  for            other tax accrued to another state that is not imposed 
nonresidents is apportioned so that only their Colorado-        on income.  
source  income  is  taxed.  For  additional  information, 
please see Department publication Income Tax Topics:            Additionally, the credit is not allowed for any amount of 
Part-Year Residents and Nonresidents, available online          tax a state imposes based on the taxpayer’s residency in 
at Tax.Colorado.gov/individual-income-tax-guidance-             that  state,  rather  than  based  upon  the  source  from 
publications.                                                   which the income is derived. 

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Income Tax Topics: Credit for Tax Paid to Another State 

Income sourcing                                                   Allowable credit 

The credit is allowed only for taxes imposed on income 
                                                                  In general, the credit is allowed for the net amount of 
derived  from  sources  in  the  other  state.  In  general, 
                                                                  income tax accrued to another state, but the credit is 
income is derived from sources in another state if it is 
                                                                  limited in two ways, discussed later in this publication. 
attributed to any of the following: 
                                                                  The net tax that qualifies for the credit is the income 
 ➢ the ownership of any interest in real or tangible              tax imposed by the other state, including any alternative 
   personal property in that state;                               minimum tax imposed by that state, minus any income 
                                                                  tax credits allowed by the state against the income tax 
 ➢ A business, trade, profession, or occupation                   imposed, except for any credits allowed for estimated 
   carried on in that state;                                      payments  made  by  the  taxpayer  and  income  taxes 
                                                                  withheld  from  the  taxpayer’s  wages  or  other  income. 
 ➢ A partner’s distributive share of partnership income           The net tax that qualifies for the credit does not include 
   sourced that state under Colorado law; and                     any recapture required by the state for credits claimed 
                                                                  by the taxpayer in a prior tax year. If the other state 
 ➢ A shareholder’s pro rata share of S corporation 
                                                                  does not impose any income tax, the Colorado resident 
   income sourced to that state under Colorado law. 
                                                                  cannot claim any credit with respect to income derived 
                                                                  from sources in that state. 
Please see 1 CCR 201-2, Rule 39-22-109 for additional 
information about income sourcing.  
                                                                  Limitations 

Tax accrual during the tax year 
                                                                  Two  limitations  apply  to  the  credit  allowed  for  taxes 
                                                                  paid  to  another  state.  The  first  limit  applies  in 
The credit is allowed based on the tax year for which the 
tax accrues, not the date the tax is actually paid. If the        determining  the  credit  a  taxpayer  may  claim  for  tax 
other state taxes the income in a different tax year than         accrued to any single state. The second limit applies in 
Colorado,  the  credit  may  not  be  claimed  for  taxes         determining the total credit a taxpayer may claim for 
accrued to the other state for that tax year.                     tax accrued to all states. 

State taxes accrued by partnerships and S corporations            Both limits are based on the taxpa  yer’s gross Colorado 
                                                                  tax and modified Colorado adjusted gross income. The 
Some  states  may  impose  an  income  tax  directly  on  a       following sections discuss the calculation of a taxpayer’s 
partnership or S corporation (“pass-through entity”). In          gross Colorado tax and modified Colorado adjusted gross 
such  case,  each  resident  partner  or  shareholder             income. 
(“member”)     is  considered  to  have  paid  a  tax  to  that 
state  in  an  amount  equal  to  that  member  ’s pro  rata      Gross Colorado tax 
share of  the  net income tax paid  by the  pass-through 
entity.                                                           An individual’s gross Colorado tax is the total Colorado 
                                                                  income tax imposed on the individual’s income for the 
If the tax year for the pass-through entity is not the same       tax year under Colorado law, including any alternative 
as the tax year for the member, taxes accrued by the              minimum tax. For the purpose of calculating the credit, 
pass-through entity for a tax year are deemed to accrue           a  taxpayer’s  gross  Colorado  tax does  not  include  the 
for its members in the member’s tax year within which             recapture of any credit claimed in a prior tax year and 
the pass-through entity’s tax year ends.                          is not reduced by any credit claimed by the taxpayer for 
                                                                  the tax year. 

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Income Tax Topics: Credit for Tax Paid to Another State 

Modified Colorado adjusted gross income                          In  determining taxpayer’s  modified Colorado  adjusted 
                                                                 gross income from sources within the other state, all of 
A taxpayer’s modified Colorado adjusted gross income is          the taxpayer’s income, gains, and losses from sources 
their  federal  adjusted  gross  income  modified  by  any       within  the  other  state  are  considered.  However,  no 
additions  and  subtractions  reported  on  their  Colorado      additions made on the taxpayer’s income tax return filed 
income  tax  return  for  the  tax  year,  except  for  the      for that state are included in this calculation, except to 
following additions and subtractions:                            the  extent  that  the  same  addition  is  required  under 
                                                                 Colorado  law  in  determining  the  taxpayer’s  modified 
 ➢ Any state income tax addback on line 2 of the 
                                                                 Colorado adjusted gross income. 
   Colorado Individual Income Tax Return (DR 0104); 
                                                                 Limitation on the total credit 
 ➢ Any qualified business income deduction addback 
   on line 3 of the 2021 or 2022 Colorado Individual             The total credit a taxpayer may claim for all states is 
   Income Tax Return (DR 0104);                                  limited  to  the  amount  of  Colorado  income  tax  the 
                                                                 taxpayer would otherwise owe for the portion of their 
 ➢ Any itemized deduction addback on line 4 of the 2022 
                                                                 modified Colorado adjusted gross income that is derived 
   Colorado Individual Income Tax Return (DR 0104); 
                                                                 from sources outside of Colorado. The limit is calculated 
                                                                 by multiplying the taxpayer’s gross Colorado tax for the 
 ➢ Any conservation easement addback reported on 
                                                                 tax year by a fraction representing the portion of their 
   the “Other Additions” line of the Colorado 
                                                                 income that is derived from sources outside of Colorado. 
   Individual Income Tax Return (DR 0104); and 
                                                                 The numerator of the fraction is the taxpayer’s modified 
 ➢ Any subtraction claimed for qualifying charitable             Colorado adjusted gross income from sources outside of 
   contributions on the Subtractions from Income                 Colorado and the denominator is the taxpayer’s entire 
   Schedule (DR 0104AD).                                         modified Colorado adjusted gross income. For assistance 
                                                                 in  determining  the  amount  of  income  derived  from 
Credit limitation for each state                                 sources  in  the  other  state,  please  see  the  section  on 
                                                                 income sourcing, earlier in this publication. 
The credit a taxpayer may claim is limited to the amount 
of  Colorado  income  tax  the  taxpayer  would  otherwise       In determining a taxpayer’s modified Colorado adjusted 
owe for the portion of their federal taxable income that         gross income from sources outside of Colorado, all of the 
is derived from sources in the other state. The limit is         taxpayer’s income, gains, and losses from sources within 
calculated by multiplying the taxpayer’s gross Colorado          the  other  state  are  considered.  For  example,  if  the 
tax  for  the  tax  year  by  a  fraction  representing  the     taxpayer has $50,000 of income from one state and a 
portion of their income that is derived from sources in          $30,000 loss from another state, the taxpayer’s modified 
the  other  state.  The  numerator  of  the  fraction  is  the   Colorado adjusted gross income from sources outside of 
taxpayer’s  modified Colorado  adjusted  gross  income           Colorado is $20,000. 
from sources within the other state and the denominator 
is  the  taxpayer’s  entire  modified Colorado  adjusted         States that do not impose an income tax 
gross income. For assistance in determining the amount 
of  income  derived  from  sources  in  the  other  state,       Several  states  do  not  impose  an  income  tax.  Colorado 
please see the section on income sourcing, earlier in this       residents may not claim any credit for income derived from 
publication.                                                     sources in these states. The credit is allowed only if the 
                                                                 Colorado resident actually accrues an income tax liability 
                                                                 for their income derived from sources in the other state.   

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Income Tax Topics: Credit for Tax Paid to Another State 

Example of credit limitation 

A resident individual taxpayer has income and losses from three states other than Colorado during the tax year and 
accrues tax to two of those states: 

 ➢ State A: The taxpayer has $25,000 of income from State A and accrues $800 of tax to State A on that income. 

 ➢ State B: The taxpayer has $5,000 of income from State B and accrues $300 of tax to State B on that income. 

 ➢ State C: The taxpayer has a $17,500 loss from State C and accrues $0 of tax to State C on that loss. 

The taxpayer’s total modified Colorado adjusted gross income for the tax year is $125,000. To determine the allowable 
credit,  the  taxpayer  must  calculate  the  credit  limitation  for  each,  as  well  as  the  limitation  on  the  total  credit,  as 
illustrated below. 

                            Allowable Credit for Taxes Paid to Other States 

 State                                                             State A       State B      State C           Total 

 Gross Colorado tax                                                $      5,000  $     5,000  $     5,000  $     5,000 

 Modified Colorado adjusted gross income from sources in the other state  $   25,000  $     5,000  -$   17,500  $   12,500 

 Total modified Colorado adjusted gross income                     $ 125,000  $ 125,000       $ 125,000  $ 125,000 

 Modified Colorado adjusted gross income from sources in the other 
 state divided by total modified Colorado adjusted gross income            20%            4%            0%            10% 

 Gross Colorado tax multiplied by the percentage calculated above  $      1,000  $        200 $           0  $        500 

 Tax accrued to the other state                                    $        800  $        300 $           0  $     1,100 

 Allowable credit                                                  $        800  $        200 $           0  $        500 

The total credit the taxpayer may claim is limited to $500.  

 ➢ State A: The credit limitation calculated for State A is $1,000 and the taxpayer accrued $800 of tax to State A. 
   The taxpayer can claim no more than $800 of credit for tax paid to State A. 

 ➢ State B: The credit limitation calculated for State B is $200 and the taxpayer accrued $300 of tax to State B. The 
   taxpayer can claim no more than $200 of credit for tax paid to State B. 

 ➢ State C: The taxpayer accrued no tax to State C and can therefore claim no credit for tax accrued to State C. 

 ➢ Total: The total credit limitation is $500 and the taxpayer accrued $1,100 of total tax to all states. The taxpayer 
   can claim a total credit of no more than $500 for taxes paid to other states.

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Income Tax Topics: Credit for Tax Paid to Another State 

Part year residents                                              As a part-year resident, the taxpayer completes a Part-
                                                                 Year  Resident/Nonresident  Tax  Calculation  Schedule     
A part-year resident can claim credit only for tax accrued       (DR 0104PN) to calculate their Colorado income tax, as 
to  another  state  while  the  taxpayer  was  a  Colorado       illustrated below. For additional information regarding 
resident. If the taxpayer accrued tax to the other state         the tax calculation for part-year residents, please see 
during both the part of the year that the taxpayer was a         the form DR 0104PN, its instructions, and Department 
Colorado  resident  and  the  part  of  the  year  that  the     publication Income  Tax  Topics:  Part-Year  Residents  & 
taxpayer was not a Colorado resident, the total net tax          Nonresidents, all available online at Tax.Colorado.gov.  
accrued  to  the  other  state  for  the  tax  year  must  be 
prorated to determine the amount of credit the part-year         Part-Year Resident Tax Calculation (DR 104PN) 
resident may claim. The prorated amount is determined by 
multiplying the total tax accrued to the other state for the     Line item                       Federal  Colorado 
tax year by a fraction. The numerator of the fraction is the 
part of the total amount of income taxed by the other state      Wages                           $ 48,000 $42,000 
that  is  derived  from  sources  in  that  state  while  the 
taxpayer was a Colorado resident, and the denominator is         Rental income                   $ 12,000 $  6,000 
the total amount of income taxed by the other state. 
                                                                 Modified adjusted gross income  $ 60,000 $ 48,000 

Modified Colorado adjusted gross income                          Apportionment percentage                        80% 

For  the  purpose  of  calculating  the  credit  limitations     Tentative tax                            $   1,980 
described earlier in this publication, only that part of a 
part-year  resident’s  modified Colorado  adjusted  gross        Apportioned tax                          $   1,584 
income that relates to the period of the year they were a 
Colorado resident is considered. This amount is calculated       State A imposes $900 of tax on the $18,000 of income 
on the Part-Year Resident/Nonresident Tax Calculation            from  that  state,  consisting  of  the  $6,000  of  wage 
Schedule (DR 0104PN) and appears on line 33 of that form.        income, earned in State A while they were a resident of 
                                                                 State A, and $12,000 of rental income from real property 
Example of credit for part-year resident 
                                                                 in State A, realized over the course of the entire year.  
The  taxpayer  is  a  resident  of  State  A  from  January  1 
                                                                 To determine the possible credit the taxpayer can claim 
through June 30 and a resident of Colorado from July 1 
                                                                 for taxes paid to State A, the $900 of tax accrued must be 
through  December  31  of  the  tax  year.  Their  federal 
                                                                 prorated as described earlier in this publication. Of the 
adjusted gross income is $60,000, consisting of $48,000 
                                                                 $6,000 of wages and $12,000 of rental income taxed by 
of  wage  income  and  $12,000  of  rental  income.  They 
                                                                 State A, only $6,000 of the rental income was realized 
claim $15,000 in federal deductions, resulting in federal 
                                                                 while  the  taxpayer  was  a  Colorado  resident. 
taxable income of $45,000. 
                                                                 Consequently,  the  $900  of  tax  accrued  to  State  A  is 
Of  their  $48,000  of  wage  income,  $6,000  was  earned       prorated by multiplying it by 33% (the $6,000 of rental 
while  living  and  working  in  State  A  and  $42,000  was     income  that  is  subject  to  Colorado  tax  divided  by  the 
earned  while  living  and  working  in  Colorado.  The          $18,000 of total income taxed by State A). As a result, 
taxpayer ’s$12,000 of rental income was from a property          only $300 of the tax imposed by State A accrued while the 
in  State  A.  The  rental  income  was  received  evenly        taxpayer was a Colorado resident and only this $300 of tax 
throughout  the  year,  with  $1,000  of  rental  income         can  potentially  be  claimed  as  a  credit  for  tax  paid  to 
realized during each month of the tax year.                      another state, subject to the limitation discussed below. 

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Income Tax Topics: Credit for Tax Paid to Another State 

The credit the taxpayer can claim for tax paid to State A is limited to $198, as illustrated below. Of the taxpayer’s 
$48,000 total modified Colorado adjusted gross income, $6,000, or 12.5% was from sources in State A. Consequently, the 
taxpayer can claim credit for no more than 12.5% of the taxpayer’s total $1,584 gross Colorado tax. 

                            Allowable Credit for Taxes Paid to Other States 

 State                                                                                                           State A 

 Gross Colorado tax                                                                                              $     1,584 

 Modified Colorado adjusted gross income from sources in the other state                                         $     6,000 

 Total modified Colorado adjusted gross income                                                                   $   48,000 

 Modified  Colorado  adjusted  gross  income  from  sources  in  the  other  state  divided  by  total  modified 
 Colorado adjusted gross income                                                                                  12.5% 

 Gross Colorado tax multiplied by the percentage calculated above                                                $        198 

 Tax accrued to the other state                                                                                  $        300 

 Allowable credit                                                                                                $        198 

Claiming the credit                                            Amended returns 

Any  taxpayer  claiming  the  credit  must  complete  a        A  taxpayer  must  file  an Amended  Colorado  Individual 
separate  Individual  Credit  Schedule  (DR  104CR)  to        Income Tax Return (DR 0104X) to correct the amount of 
calculate the credit limitation for each state, as well as a   the credit claimed in any of the following circumstances: 
separate form DR 104CR to calculate the credit limitation 
                                                               ➢
for all states. The taxpayer must submit all the completed        the tax ultimately paid to the other state differs 
schedules  with  their Colorado  Individual  Income  Tax          from the amount the taxpayer used to calculate 
Return  (DR 0104).  Forms  and  instructions  are  available      the credit; 
online at Tax.Colorado.gov/individual-income-tax-forms. 
                                                               ➢  any part of the tax paid is refunded; 
Along  with  the  return  and  schedule(s),  the  taxpayer 
                                                               ➢
must also provide a copy of the return filed with each            the modified Colorado adjusted gross income from 
                                                                  sources in other states reported on the taxpayer’s 
other state or so much of the return(s) as is relevant to 
                                                                  original return was not calculated correctly. 
the  determination  of  the  credit.  Any  partner  or 
shareholder claiming credit for their distributive or pro 
                                                               If a taxpayer files an amended return, to redetermine 
rata share of tax paid to another state by the partnership 
                                                               the amount of the credit or for any other reason, the 
or S corporation must submit with their Colorado return 
                                                               taxpayer  must  include  all  of  the  necessary  credit 
a  copy  of  the  statement  provided  to  them  by  the 
                                                               schedules  (DR 0104CR)  for  the  credit  claimed  on  the 
partnership or S corporation reporting their distributive 
                                                               amended return, even if the amount of the credit did 
or pro rata share of the tax and the income derived from 
                                                               not change with the amended return. 
sources in that state. 

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Income Tax Topics: Credit for Tax Paid to Another State 

Additional resources                                                  

The following is a list of statutes, regulations, forms, and 
guidance pertaining to the credit for taxes paid to other 
states.  This  list  is  not,  and  is  not  intended  to  be,  an 
exhaustive  list  of  authorities  that  govern  the  tax 
treatment of every situation. Individuals and businesses 
with specific questions should consult their tax advisors. 

Statutes and regulations 

 ⮚ § 39-22-108, C.R.S. Credit for tax paid to other 
   states. 

 ⮚ Rule 39-22-108. Credit for Taxes Paid to Another 
   State. 

Forms and guidance 

 ⮚ Colorado.gov/Tax 

 ⮚ Tax.Colorado.gov/individual-income-tax-forms 

 ⮚ Colorado Individual Income Tax Return (DR 0104) 

 ⮚ Individual Credit Schedule (DR 104CR) 

 ⮚ Amended Colorado Individual Income Tax Return 
   (DR 0104X) 

 ⮚ Part-Year Resident/Nonresident Tax Calculation 
   Schedule (DR 0104PN) 

 ⮚ Colorado Individual Income Tax Guide 

 ⮚ Tax.Colorado.gov/individual-income-tax-
   guidance-publications 

 ⮚ Income Tax Topics: Part-Year Residents and 
   Nonresidents 

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