Colorado offers a unique state income tax credit specifically for employers that helps their workers save toward buying a home. This opportunity is another tool employers can use for recruitment and retention. Employers may claim this credit for contributions they make to their employees’ qualifying home savings accounts. This tax credit is available to Colorado employers through 2026.
This credit was created by Colorado House Bill 23-1189, “Employer Assistance for Home Purchase Tax Credit,” It operates similarly to credits already available for some college-savings contributions between employers and employees.
Who Can Offer These Accounts?
Any employer with one or more employees in Colorado can establish one or more qualifying home savings accounts for their employees.
What Can Employees Use the Funds For?
Employees may use funds deposited into their accounts for eligible expenses in connection with their purchase of a primary residence, including:
- Any down payment costs
- Any closing costs included in a real estate settlement statement (appraisal fees, mortgage origination fees, inspection fees, etc.).
Income Tax Credit for Participating Employers:
The structure of the credit is straightforward, but has important limitations for employers to understand.
- The State of Colorado will give businesses a small tax break equal to 5% of the money they chip in to help employees buy a home, as long as the contribution meets the program’s rules.
- There is a per-employee cap – the credit is limited to $5,000 per employee per year.
- There is an employer cap – no employer can claim more than $500,000 of this credit in a single tax year.
- If employment ends before the funds are used, the unused employer contribution is forfeited back to the employer, while the employee remains entitled to their own contributions plus earnings.
Key Information for Employees:
The program is designed so that employees benefit both from the employer contribution and from favorable state-tax treatment when they use the money to buy a home.
- Employee payroll contributions: Employees can authorize the employer to withhold a set amount of their wages and add it to the designated home-purchase savings account, alongside the employer’s contributions.
- State income subtraction: For tax years 2024-2026, an employee can subtract the employer contribution from federal taxable income when calculating Colorado taxable income, effectively excluding that amount from state tax when the conditions are met.
Benefits to Employers
Housing affordability is a central concern for many Colorado workers, particularly in metro areas where high rents and down-payment hurdles can derail long-term financial plans. For employers, this credit converts part of a housing assistance program into a recruitment and retention tool and a state tax credit.
Key Reasons to Offer Home Savings Accounts:
- Talent attraction: Offering structured down-payment help differentiates you from competitors
- Retention: Because employer funds may be forfeited if the employee leaves before using them, the program can incentivize longer tenure.
- Tax efficiency: The 5% state credit directly reduces your Colorado income tax liability (subject to the annual caps), effectively discounting the cost of the benefit.
For employees, framing this as a “first-home accelerator” benefit can be powerful to build employee savings and employer-supported funds that make closing on a home more attainable. Make sure they know the savings they have earned can be used after 2026. The only thing that expires in 2026 is the ability for the employer to earn the credit.
Design Tips for a Practical Employer Program
Implementing a home savings benefit requires coordination across HR, payroll, and tax advisors. The mechanics can be modeled on other payroll-deduction benefits already administered by employers.
Consider the following design choices:
- Eligibility: Decide whether to limit the benefit to full-time employees, those with a minimum service period, or those below certain income thresholds.
- Employer contribution formula: Choose a fixed dollar amount per year, a percentage match on employee contributions, or a tiered structure based on tenure.
- Vesting and forfeiture: Align forfeiture rules with your workplace culture and legal requirements so that employees clearly understand when employer funds may be lost.
- Communication: Provide simple, written explanations about how the account works, what counts as eligible expenses, and how the tax treatment works at both the employer and employee level, consistent with state guidance.
Colorado’s employer contribution to home savings accounts credit gives you as the employer a benefit that can support employees’ access to affordable and attainable housing. Additional information, considerations, and eligibility are outlined in the Colorado Department or Revenue instructions.
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