State taxes for recent college graduate

[RPHammer]

I am a Colorado resident.  My daughter graduated from college in Texas in May 2025.  I claimed her as a dependent on my 2025 tax return.  We file our taxes separately.  She moved to Texas full time for employment in September 2025.  All of her 2025 earned income is from her job in Texas.  She did receive unearned income from investments throughout the year.  

My question is:  Since I claimed her as a dependent, does she need to file a state return with Colorado?   Since Colorado bases their tax on your federal return, in TurboTax, it appears Colorado is taxing her for income earned in Texas.  Obviously, Texas has no state income tax.

What is the correct way to go about this?  Does she need to file a state return with Colorado because she was my dependent and had unearned income?  If so, does she file with Colorado as a "Full Year Resident", or as a "Part Year Resident" or as a "Nonresident"?

Thanks

[CatinaT1 · Accepted solution]

Yes, she needs to file a Colorado return, but she should file as a Part-Year Resident.

For state tax purposes, your residency is based on your "domicile" (your true, permanent home). Going to college out of state generally does not change a student's domicile. Even though she was physically in Texas for school, she was legally still a Colorado resident. When she graduated and moved to Texas permanently for full-time employment, she legally severed her Colorado residency and established a new domicile in Texas. Because her residency changed during the calendar year, she is a Part-Year Resident of Colorado for 2025.

Here is how she needs to file:

1. She needs to ensure she checks the box that says "Someone else can claim me as a dependent" on her federal return.
2. Update the Personal Info Section: She needs to go back to the very beginning of her TurboTax return. Where it asks for her state of residence, she must indicate that she lived in more than one state in 2025.
3. Enter the Move Date: She will set Colorado as her previous state and Texas as her current state, entering her exact move date in September 2025.
4. The Income Allocation Screen: This is the most critical step. By selecting "Part-Year Resident," TurboTax will eventually bring her to a screen in the Colorado state return that asks her to allocate her income.
5. W-2 Income: She will tell the software that $0 of her Texas W-2 was earned while she was a Colorado resident.
6. Unearned Income (Investments): She will have to divide this up. Any dividends, interest, or capital gains recognized between January and her move date in September are taxable by Colorado. Any investment income earned after she officially moved is sourced to Texas and is tax-free. You could take the total and divide by 12 to get a monthly amount. Depending on if she moved in early September or late September, allocate either 8 or 9 months to Colorado. 
7. Once she properly allocates her income to the correct states based on the calendar dates, Colorado will completely drop its claim to her Texas wages, and her state tax bill will drop.

[xmasbaby0]

Living away at  school is considered to be a "temporary absence" from home.  You claimed your child as a dependent and were able to say she lived at home.     Although she earned income in TX while she was a student, she is subject to paying state tax for the state she "lived" in--which is CO because she is being claimed.  

She will need to prepare a part year CO return.

[RPHammer]

Thank you!  Thorough response...worked perfectly!