Why are my taxes going up?

With the recent election concluded and the various ballot issues and amendments passing muster, this week provides the helpfully auspicious release of the 2027 tax brackets and contribution limits as well. Unfortunately, while tax bracket changes are meant to adjust for inflation and generally keep people’s inflation-adjusted taxes where they are, they are not necessarily going to do the trick on their own. This is particularly exacerbated by the continuance and introduction of several new tax cliffs into the tax code for Colorado that will be made effective in 2027. So today we’re discussing why, all things being equal, your taxes are going up in 2027 and some planning techniques to address the additional costs.

Federal Tax Bracket Changes

Each year the Federal Government releases new tax brackets that attempt to adjust for inflation, but frequently fail to do so. This year is no different. While the most recent inflation reading via the Consumer Price Index (CPI) reads that inflation over the past 12 months has been 3.7%, the new income tax brackets have only increased year over year by 3.11%-3.26%, with heads of household seeing the worst limitations to their taxes.

Effectively, this means anyone earning inflation-adjusted income for 2027 should anticipate paying 0.42% to 0.57% more in Federal Income Tax, all things being equal. While measures such as the standard deduction, AMT exemption, and phase-outs for earned income tax credits and child tax credits also have been adjusted for inflation, none of them have kept pace with the 3.7% measure of inflation.

State Income Tax Brackets & Tax Cliffs

Not to be outshone by the Federal government’s habit of failing to adjust tax brackets for inflation, Colorado has implemented several tax cliffs in the past few years as well as now introduced a graduated income tax system. Previously and up through the end of 2026, Colorado has enjoyed a 4.4% flat income tax, which has generally been a boon to both individual taxpayers and to job creation in Colorado. With the passage of Amendment 87, Colorado has repealed its constitutionally mandated flat tax requirement, which brings about a graduated income tax system that is more common among states with income taxes. However, as with measures such as HB 22-1414 passed in 2022 and Proposition MM passed in 2025, Colorado has created several tax cliffs.

Tax cliffs differ from marginal tax increases in that they produce a materially worse income tax result the moment a particular threshold is passed. For example, when a taxpayer passes a marginal tax threshold, they might see the next dollars above that threshold taxed at a higher rate, but dollars up to that threshold remain taxed the same. With tax cliffs, changes to deductions or allowances can retroactively reduce earlier dollar benefits such that you are actually worse off having made the extra dollar than you would have been without it.

The existing tax cliff Colorado instituted via HB 22-1414 and Proposition MM was the installation of a permanent reduction of the standard income tax deduction for Colorado state income taxes for those earning more than $300,000 annually from the current deduction limits (e.g. $12,000 for Single Filers $16,000 for Married Filing Jointly filers in 2025) to a statutory limit of $1,000 for Single and Head of Household filers and $2,000 for Married Filing Jointly Filers. Notably, neither the $300,000 income threshold nor the $1,000/$2,000 thresholds are indexed for inflation. The tax impact of this change meant that, under the prior 4.4% income tax regime, if you earned $299,999 you would be better off by $484 as a Single filer and $616 as a Married Filing Jointly filer than you would be if you earned $300,000.

Effectively, this means that it is far more probable for dual-income married households to end up paying the extra income taxes but also that as wages inflate over time with the general rate of inflation devaluing the dollar’s purchasing power, more and more taxpayers will find themselves paying the extra $484 or $616 amount (assuming the same 4.4% flat tax for a moment, but only a moment!)

In addition, with the passage of Amendment 87, the newly passed graduated income tax suffers from similar issues. While it is a marginal tax bracket system rather than a tax cliff, like HB22-1414 and Proposition MM, it does not offer differing brackets for Single, Head of Household, or Married Filing Jointly filers, nor does it offer inflation adjustments. Thus, while some people may have voted for the measure to save 90 cents in income tax daily (assuming their household income was below $500,000), they will find themselves progressively paying into higher marginal tax brackets as their income increases as a byproduct of inflation or career advancement; and as with the HB and Prop measures, married couples are far more likely to find themselves paying additional state income taxes sooner rather than later, on top of the already less-than-2x marginal tax brackets for Federal income tax.

Property & Sales Tax

Finally, for those of us and the majority of our readers here in Boulder County, we have approved both a sales and property tax measure. Proposition 7A increased the sales taxes collected in the “Front Range Passenger Rail District” by $295 million annually (to start), and for those living in Longmont, adds 0.333% sales tax onto the existing 0.4% sales tax paid for Fastracks since 2004 (despite the absence of the train it pays for). While Longmont is supposedly at the top of the list for implementation of a rail line that aims to extend from Pueblo up to Fort Collins and ostensibly aims to complete the 12-year-overdue train line promised by Fastracks, we have seen the general incompetence of the transportation authorities at actually building said rail line for over two decades, so the implementation remains to be seen.

We also have voted in Proposition 1A, which aims to provide badly needed funding for subsidized childcare in Boulder County. The mill levy property tax of 2.579 aims to produce $30 million annually starting in 2027. For a residential home, this would normally translate to a $500 increase in property tax for a $500,000 home, but because of the Gallagher amendment, it is more likely to produce a $150 property tax increase on a residential property and a $1,000+ property tax increase on a commercial property.

It is noteworthy that Longmont voters voted down the public safety tax increase, which would have doubled public safety funding for the 3^rd time in 20 years. While the arguments for the measure included the desire to build another fire station in town and to hire more firefighters and police officers, the measure was perhaps hard to swallow when the crime rate is down by almost 30% in the same 20-year period and the population has only grown 18% while public safety funding has increased 57% net of inflation, though operational costs are not necessarily a thing that only grows at the rate of inflation, as expansion into license plate readers, body camera technology, and assorted other updates and advancements can increase operational costs at an accelerated rate.

Ultimately, neither of these taxes is a direct or significant increase on its own. However, starting in 2027, sales tax in Longmont, CO will be 9.198%, and property taxes will be a few hundred or thousand dollars more for residents depending on the value of your home and property.

Strategies for Keeping Your Taxes Down

With any and all of these measures impacting your take-home income, you’ll notice that the primary determinant of the income tax measures both federally and at the State level is your adjusted gross income, which is your income level before the standard or itemized deduction is included. These include the following potential deductions, some of which have remained the same while others are yet to be determined.

• Health Savings Account (HSA):
  • Single: $4,500 (+$100 from 2026)
  • Family: $9,000 (+$250 from 2026)
  • Catch-up for those over 55: +$1,000
• Traditional IRA Contributions: $7,500 (in 2026, changes for 2027 to be determined)
• IRA Catch-up for those 50+: $1,100 (in 2026, changes for 2027 to be determined)
• SIMPLE IRA Contributions:
  • $17,000 for those under 50 (in 2026, changes for 2027 to be determined)
  • $18,100 for those under 50 in businesses with 25 or fewer employees (in 2026, changes for 2027 to be determined)
  • $21,000 for those 50+ (in 2026, changes for 2027 to be determined)
  • $22,250 for those aged 60-63 (in 2026, changes for 2027 to be determined)
  • $21,000 for those 50+ (in 2026, changes for 2027 to be determined)
  • $22,250 for those aged 60-63 (in 2026, changes for 2027 to be determined)
• SEP IRA Contributions: $72,000 (in 2026, changes for 2027 to be determined)
• 401(k)/403(b)/457b Contributions:
  • $24,500 for those under 50 (in 2026, changes for 2027 to be determined)
  • $32,500 for those 50+ (in 2026, changes for 2027 to be determined)
  • $35,250 for those aged 60-63 (in 2026, changes for 2027 to be determined)
• Schedule 1-A Deductions:
  • Qualified Tips: $25,000
  • Qualified Overtime (Single): $12,500
  • Qualified Overtime (Married Filing Jointly): $25,000
  • Qualified Auto-Loan Interest: $10,000
  • Enhanced Senior Deduction: $6,000
  • Enhanced Senior Deduction Married Filing Jointly, where both filers are 65 or older: $12,000

All of these deductions can help a household remain under the $300,000 HB22-1414/Prop MM thresholds or otherwise try to keep themselves from bumping up into higher income tax brackets in both Federal and Colorado state income taxes. However, it is important to keep in mind that generally speaking, these deductions have historically not exactly kept pace with inflation either, so it is generally expected that even if you are maxing out available contributions on a pre-tax deductible basis, you will likely still see your taxes increase.

This then calls into question the value of pre-tax tax-deferred contributions or Roth contributions. All things being equal, if you are in a lower income tax bracket (e.g., 24% or below) at the Federal level, you may strongly want to consider funding a Roth-based retirement plan rather than making pre-tax contributions. This is because, absent intervention in the future to start indexing tax brackets for inflation, you are very likely to find yourself paying higher income taxes in the future than you do today. Ultimately, this may not be right for everyone, and individualized analysis is important in making this decision, but it is seriously worthy of consideration. The only alternative is to hope that later on, when you’re retired, you’re interested in moving to a state without an income tax, and those may be fewer and further between as time goes on.