Colorado collects state income tax on wages, but at a flat rate that applies to everyone
Yes, Colorado has a state income tax. The state taxes income at a flat rate of 4.63% as of 2024, meaning everyone pays the same percentage regardless of how much they earn. This rate applies to wages, salaries, investment income, and most other forms of income you receive.
The flat tax structure is different from the federal system, where rates increase as your income rises. Colorado's approach means a person earning $30,000 pays the same tax rate as someone earning $300,000, though the dollar amount owed is higher for the higher earner.
Colorado does not tax Social Security benefits, and certain retirement income has special treatment. Military pensions and some federal employee pensions are also exempt from Colorado state income tax.
Key Takeaways
- Colorado's state income tax rate is 4.63% flat, applied equally to all income levels.
- Social Security benefits are not taxed by Colorado, even if they are taxed at the federal level.
- Military pensions and certain federal employee pensions are exempt from Colorado state income tax.
- The state taxes wages, self-employment income, interest, dividends, and capital gains at the same 4.63% rate.
- Colorado residents file state taxes using Form 104, separate from federal returns.
What income Colorado taxes and what it does not
Colorado taxes most forms of income at the 4.63% rate. This includes W-2 wages from an employer, self-employment income, interest earned on savings accounts and bonds, dividends from stocks, and capital gains from selling property or investments.
Income that Colorado does not tax includes Social Security benefits, military retirement pay, and certain federal employee pensions (including those from the Civil Service Retirement System and the Federal Employees Retirement System). Some distributions from retirement accounts may also be partially or fully exempt depending on your age and the account type.
If you receive income from out-of-state sources, Colorado still taxes it if you are a resident. Non-residents who work in Colorado may owe Colorado tax on income earned in the state, even if they live elsewhere.
How the flat tax rate compares to other states
Nine states use a flat income tax rate instead of a progressive system: Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, Mississippi, Pennsylvania, and Utah. Among these, Colorado's 4.63% rate falls in the middle range. Some states charge less (Indiana at 3.23%, Pennsylvania at 3.07%), while others charge more (Kentucky at 5%, Illinois at 4.95%).
The flat rate means Colorado residents do not see their tax rate increase as income rises, which differs from the federal system and from states like California, New York, and Texas (which has no income tax at all). For high earners, a flat tax is often lower than what they would pay in a progressive state; for lower earners, it may be higher.
Filing Colorado state taxes as a resident or non-resident
Colorado residents file state taxes using Form 104, the Colorado Individual Income Tax Return, separate from the federal Form 1040. You must file if your income exceeds the filing threshold, which varies by age and filing status. For 2024, a single person under 65 with at least $14,600 in income must file; the threshold is higher for those 65 and older and for married couples.
Non-residents who earned income in Colorado during the year must file a Colorado return on that income, even if they do not live in the state. They use Form 104NR, the Non-Resident or Part-Year Resident Income Tax Return. If you worked in Colorado for only part of the year, you may file as a part-year resident, which affects which income is taxed by the state.
Colorado returns are due on the same date as federal returns: April 15 of the following year. If you file your federal return late or request an extension, the same extension applies to your Colorado return.
Deductions and credits available in Colorado
Colorado offers a standard deduction that reduces the income subject to the 4.63% tax. For 2024, the standard deduction is $3,850 for single filers and $7,700 for married couples filing jointly. You can also itemize deductions if they exceed the standard deduction, though Colorado deductions differ from federal ones.
The state also offers several tax credits, including a child dependent credit, an earned income credit (which mirrors the federal credit), and a property tax exemption for seniors and disabled individuals. Some credits are refundable, meaning you can receive money back even if you owe no tax; others reduce only the tax you owe.
If you pay taxes to another state on income earned there, Colorado allows a credit for those taxes to prevent double taxation. This is particularly relevant for people who work in one state and live in Colorado.
How Colorado's income tax affects your paycheck
Your employer withholds Colorado state income tax from your paycheck, similar to federal withholding. The amount depends on your W-4 form and the 4.63% rate applied to your taxable income. If you have multiple jobs, side income, or investment income, you may owe more tax than what is withheld, and you will owe it when you file your return.
Self-employed people and those with investment income often need to make quarterly estimated tax payments to Colorado, since no employer withholds tax. These payments are due April 15, June 15, September 15, and January 15 of the following year. Underpayment can result in penalties and interest.
You can adjust your withholding by filing a new W-4 with your employer if you expect to owe or receive a refund. Colorado uses the same W-4 form as the federal government, but the state calculates its own withholding separately.
Changes to Colorado's tax rate and recent updates
Colorado's income tax rate has remained at 4.63% since 2023. Before that, the rate was 4.55% for several years. The state legislature can change the rate, but any increase requires voter approval under the Taxpayer's Bill of Rights (TABOR), a constitutional amendment passed in 1992.
TABOR limits how much tax revenue the state can collect and requires voter consent for tax increases. This means Colorado's income tax rate is unlikely to rise without a ballot measure. The state has occasionally refunded excess revenue to taxpayers when collections exceed the TABOR limit, though this is not may provide.
For the most current rate and any recent changes, check the Colorado Department of Revenue website or speak with a tax professional, as rates and rules can shift year to year.
Frequently Asked Questions
Do I have to pay Colorado income tax if I just moved to the state?
You owe Colorado income tax on income earned after you become a resident. If you moved mid-year, you file as a part-year resident and pay tax only on income earned after your move date. Bring documentation of your move (lease, utility bill, or driver's license) when you file to establish your residency date.
Is the 4.63% rate the only tax I pay on income in Colorado?
The 4.63% is the state income tax only. You also owe federal income tax, and depending on your city, you may owe local income tax. Denver, for example, has a city income tax of 3.62%. Check your city or county rules to see if local tax applies to you.
What happens if I do not file a Colorado return?
If you owe Colorado income tax and do not file, the state can assess penalties and interest on the unpaid amount. The Department of Revenue can also place a lien on your property or garnish your wages. If you think you do not owe tax, file anyway to establish that; the penalty for filing late is usually smaller than the penalty for not filing at all.
Can I deduct federal income tax from my Colorado taxes?
No, Colorado does not allow you to deduct federal income tax paid. You can deduct state income tax on your federal return, but not the reverse. You can deduct property taxes and sales taxes on your federal return, but Colorado state income tax is not deductible on your Colorado return.
Do I owe Colorado tax on money I inherited?
No, inheritances are not subject to Colorado income tax. However, if the inherited money earns interest or dividends after you receive it, that income is taxed. If you inherit a retirement account and take distributions from it, those distributions are taxed as income.