Colorado has a state income tax, but the rate is flat and lower than most states
Colorado taxes income at a single rate of 4.63% for all residents, regardless of how much you earn. This is a flat tax, meaning everyone pays the same percentage whether your income is $30,000 or $300,000. The rate applies to wages, self-employment income, investment gains, and most other forms of income you report to the federal government.
The 4.63% rate has been in place since 2000. It is lower than the national average state income tax rate, which hovers around 5.5%, but higher than states like Texas, Florida, and Wyoming that have no state income tax at all. Colorado residents also pay federal income tax on top of the state tax.
You do not owe Colorado income tax on certain types of income. Social Security benefits are not taxed by Colorado. Military retirement pay is also exempt. Some pension income may be excluded depending on your age and the source of the pension, though the rules are specific and depend on when you turned 55 or older.
Key Takeaways
- Colorado's state income tax rate is 4.63% and applies to all residents earning income in the state, regardless of income level.
- Social Security benefits and military retirement pay are not subject to Colorado state income tax.
- If you work in Colorado but live in another state, you may owe Colorado tax on that income depending on your residency status and the other state's rules.
- Colorado has no local income taxes, so the 4.63% state rate is the only income tax you owe to Colorado beyond federal tax.
- Self-employed people in Colorado owe the 4.63% state income tax plus federal self-employment tax on net business income.
Who has to pay Colorado income tax
You owe Colorado income tax if you are a resident of the state and earn income from any source. Residency for tax purposes is not the same as having a driver's license—it is based on where you spend most of your time and where your permanent home is. If you moved to Colorado during the year, you owe tax on income earned after you became a resident.
If you work in Colorado but live in another state, the answer depends on that other state's rules. Some states tax their residents on all income, even money earned out of state. Others do not. Colorado will tax you on income you earn within Colorado regardless of where you live, but you may not owe Colorado tax if you are a nonresident working there temporarily. You should check with the other state's tax authority to avoid paying tax twice on the same income.
Nonresidents who earn income in Colorado—such as contractors, performers, or people with rental property there—owe Colorado tax on that specific income. They do not owe tax on income earned outside the state.
What income is taxed and what is not
Colorado taxes most forms of income at the 4.63% rate: W-2 wages, self-employment income, interest, dividends, capital gains, rental income, and business profits. The state follows federal income definitions closely, so if the IRS counts it as income, Colorado does too.
Several types of income are exempt from Colorado state tax. Social Security benefits are completely excluded. Military retirement pay is not taxed. Pension income has a partial exemption if you are 55 or older—you can exclude up to $24,000 per year of pension or annuity income, though this limit changes annually and depends on the source of the pension. Federal employees' pensions have different rules than private pensions.
Child support received is not taxed. Gifts and inheritances are not taxed. Workers' compensation is not taxed. Unemployment benefits, however, are taxed by Colorado at the full 4.63% rate.
How Colorado income tax is withheld from paychecks
If you are a W-2 employee in Colorado, your employer withholds state income tax from each paycheck based on a form you complete called the Colorado Form DR 1098. This is similar to the federal W-4 form. You can claim allowances to reduce withholding or request extra withholding if you expect to owe money at tax time.
The amount withheld depends on your gross pay, how often you are paid, and the number of allowances you claim. If you claim zero allowances, more tax is withheld. If you claim allowances, less is withheld. You can update your DR 1098 at any time if your situation changes—for example, if you get a second job or your spouse starts working.
Self-employed people do not have an employer to withhold tax. You owe estimated tax payments to Colorado four times per year if you expect to owe $500 or more in state income tax. These payments are due on April 15, June 15, September 15, and January 15. You can make payments online through the Colorado Department of Revenue website.
Filing your Colorado income tax return
Colorado residents file a state income tax return using Form 104 if they are required to file a federal return. You are required to file if your income exceeds certain thresholds, which vary by age and filing status. Most working people have to file. The deadline is April 15 of the year following the tax year, the same as the federal deadline.
You can file by mail or electronically through the Colorado Department of Revenue website. Many tax preparation software programs include Colorado forms. If you cannot afford to pay a tax preparer, the IRS Volunteer Income Tax Assistance (VITA) program offers free tax preparation at locations throughout Colorado, usually from January through April.
If you are owed a refund, Colorado processes returns within 4 to 6 weeks if you file electronically, or 8 to 12 weeks if you file by mail. You can check the status of your return on the Colorado Department of Revenue website using your Social Security number and the amount of your refund.
Deductions and credits available in Colorado
Colorado allows a standard deduction, which is the amount of income you can earn without owing tax. The standard deduction amount changes each year and depends on your filing status and age. For 2024, the standard deduction for a single filer under 65 is $3,850, though this figure varies annually. If your income is below the standard deduction, you do not owe Colorado income tax.
Colorado also offers a child dependent credit of $3,750 per may have access to child under age 17. This is a credit, not a deduction, which means it reduces your tax dollar-for-dollar rather than reducing your taxable income. You must claim the child as a dependent on your federal return to claim the Colorado credit.
Some taxpayers may be able to claim credits for property taxes paid, education expenses, or other specific situations. The rules for these credits are narrow and depend on your income level and the type of expense. You can review the full list of available credits on the Colorado Department of Revenue website or ask a tax preparer whether you may have access to.
Frequently Asked Questions
Do I owe Colorado income tax if I just moved there?
You owe Colorado tax on income earned after you become a resident. If you moved mid-year, you file a part-year resident return and owe tax only on income earned after your move date. You will need to show proof of your move date, such as a lease or utility bill. Contact the Colorado Department of Revenue if you are unsure when your residency began for tax purposes.
Is Colorado income tax deductible on my federal return?
Yes, you can deduct Colorado state income tax paid on your federal return if you itemize deductions instead of taking the standard deduction. However, there is a cap: the total of state and local taxes (SALT) you can deduct is limited to $10,000 per year. Many people find that the standard deduction is larger than their itemized deductions, so they do not benefit from deducting state tax.
What happens if I do not file a Colorado income tax return?
The Colorado Department of Revenue can assess penalties and interest on unpaid taxes. If you owe money and do not file, penalties start at 5% of the unpaid tax and increase over time. Interest accrues daily. If you cannot pay, contact the Department of Revenue to discuss payment plans or hardship options. Filing late is better than not filing at all.
Can I claim a credit for taxes paid to another state?
Colorado does not offer a credit for taxes paid to other states. If you worked in multiple states and owe tax to both, you will owe the full amount to each state. However, you may be able to deduct taxes paid to other states on your federal return if you itemize. Check the other state's rules to see if they offer a credit for Colorado taxes paid.
Does Colorado tax retirement income differently?
Colorado offers a partial exemption for pension and retirement income if you are 55 or older. You can exclude up to $24,000 per year of may have access to pension or annuity income from Colorado taxation. Social Security and military retirement are fully exempt regardless of age. The exemption amount changes annually, so check the current year's limit on the Colorado Department of Revenue website.