Colorado does not tax pension income, with limited exceptions for federal employees and certain military pensions

Colorado exempts most pension income from state income tax. If you receive a pension from a private employer, a state or local government job, or the military, Colorado will not tax that money. The main exception is pensions paid to federal employees under the Civil Service Retirement System (CSRS) — those are taxable in Colorado, though federal employees under the Federal Employees Retirement System (FERS) are exempt. Military pensions are fully exempt regardless of when you served.

This exemption applies only to Colorado state income tax. You will still owe federal income tax on most pensions, and you may owe taxes to other states if you moved to Colorado after retiring. The exemption does not reduce your federal tax burden or change how Social Security is taxed.

Key Takeaways

  • Colorado does not tax pension income from private employers, state and local government jobs, or the military.
  • Federal employees under CSRS must pay Colorado state income tax on their pensions; FERS employees do not.
  • The exemption covers only Colorado state tax, not federal income tax or taxes owed to other states.
  • You still report pension income on your federal return and may owe federal tax depending on your total income and filing status.
  • Social Security benefits follow separate Colorado tax rules and are not affected by the pension exemption.

Which pensions are exempt from Colorado tax

Colorado's pension exemption covers retirement income from most sources. If you worked for a private company and receive a pension, that income is exempt. If you retired from a Colorado state agency, school district, city, county, or other local government employer, your pension is exempt. If you served in the U.S. military and receive a military retirement check, that is also exempt.

The exemption applies to the full amount of your pension payment, not a portion of it. You do not have to report it on your Colorado state tax return, and it does not count toward your Colorado taxable income. This is one of the reasons Colorado is considered tax-friendly for retirees.

The CSRS exception: federal employee pensions that are taxable

Federal employees who retired under the Civil Service Retirement System (CSRS) must pay Colorado state income tax on their pension. CSRS was the federal retirement plan used before 1984. If you worked for a federal agency and retired before 1984, or if you were hired before 1984 and chose CSRS, your pension is taxable in Colorado.

Federal employees hired in 1984 or later are covered by the Federal Employees Retirement System (FERS) instead. FERS pensions are exempt from Colorado tax. If you are unsure which system covers your federal pension, your retirement statement or the Office of Personnel Management can tell you. The distinction matters only for Colorado tax purposes — federal tax applies to both CSRS and FERS pensions.

Federal income tax still applies to all pensions

Colorado's exemption from state tax does not mean your pension is tax-free. The federal government taxes most pension income. When you receive your pension check, federal tax may already be withheld, or you may owe tax when you file your federal return.

The amount of federal tax you owe depends on your total income, filing status, and age. If your only income is a pension, you may owe little or no federal tax if the pension is small. If you have other income — Social Security, investment earnings, part-time work — your total taxable income may push you into a higher bracket. You report all pension income on your federal Form 1040 and Schedule 1.

What to do if you moved to Colorado from another state

If you retired in another state and then moved to Colorado, you may still owe tax to your former state on your pension. Some states tax pensions; others do not. The state where you worked and earned the pension may claim tax rights even after you move, depending on that state's laws and when you retired.

You should file a tax return in your former state for the year you moved if that state taxes pensions and you received pension income during the part of the year you lived there. Colorado will not tax the pension, but your old state may. Contact your former state's revenue department or a tax preparer familiar with multi-state returns to understand your obligations.

How the pension exemption affects your overall tax picture

The Colorado pension exemption can lower your state tax bill significantly, but it does not change your federal taxes or affect other tax credits you may receive. If you are over 55 and have income from work, you may also may have access to for Colorado's senior property tax exemption or other age-based credits — the pension exemption does not interfere with those.

When you file your Colorado return, you will report your pension income on the appropriate line, then claim the exemption so it does not count toward your taxable income. This is a straightforward process if you use tax software or work with a preparer. The key is making sure you report the correct type of pension — if you have a CSRS federal pension, you cannot claim the exemption.

Frequently Asked Questions

Do I have to file a Colorado tax return if my only income is a pension?

No, if your pension is your only income and it is below the filing threshold for your age and filing status, you do not have to file. Colorado's filing requirements are similar to federal requirements. However, filing may be worth it if you are owed a refund or want to claim credits like the property tax exemption.

Is my military pension taxed in Colorado?

No. Military pensions are fully exempt from Colorado state income tax, regardless of when you served or which branch. You will still owe federal income tax on the military pension unless you are a disabled veteran with a VA disability rating.

What if I receive both a pension and Social Security?

Colorado does not tax either one. Your pension is exempt under the pension exemption, and Social Security is exempt under a separate Colorado rule. You will owe federal tax on Social Security only if your combined income exceeds certain thresholds, but Colorado will not tax it.

Can I claim the pension exemption if I worked for a nonprofit?

If the nonprofit offered a pension plan and you receive pension payments from it, yes — the exemption applies to nonprofit pensions the same way it applies to private employer pensions. The exemption covers the source of the income, not the type of employer.

Do I need to do anything special to claim the pension exemption on my Colorado return?

You report your pension income on your return, then claim the exemption on the appropriate line. Tax software and Colorado's forms will guide you through this. If you use a tax preparer, tell them the type of pension you receive so they can apply the exemption correctly.