PERA/DPSRS subtraction

Under certain circumstances, a portion of pension income paid by the Colorado Public Employees Retirement Association (PERA) or the Denver Public Schools Retirement System (DPSRS) and included in a taxpayer’s federal taxable income may qualify for subtraction. Most PERA and DPSRS retirement benefits will not qualify for this subtraction. Current state employees cannot claim a subtraction for PERA contributions they made during the current tax year.

A taxpayer may qualify for this subtraction if they received benefits during the tax year from either PERA or DPSRS for contributions made either:

to PERA any time between July 1, 1984, and December 31, 1986; or

to DPSRS any time between January 1, 1986, and December 31, 1986.

For PERA contribution information, contact PERA at www.copera.org or call 303-832-9550 or 1-800-759-7372.

These contributions were subject to state income tax in the years they were made but were tax-deferred for federal income tax purposes. This means federal income tax must be paid when receiving benefit payments upon retirement or termination. The subtraction on the Colorado return enables a taxpayer to subtract from taxable income the amount of pension benefits on which state income tax was already paid.

A taxpayer may not claim the subtraction if they have already subtracted the total amount of previously taxed contributions on Colorado income tax returns they filed for prior tax years.

If a taxpayer is eligible for both the PERA/DPSRS subtraction and the pension and annuity subtraction, the taxpayer should generally claim the pension and annuity subtraction first for their qualifying pension and annuity income. If their pension and annuity income exceeds the applicable limits (discussed earlier in this publication), then the individual may claim the PERA/DPSRS subtraction for any PERA or DPSRS benefits included in their federal taxable income, not to exceed the qualifying contributions not previously subtracted.