Colorado taxes your wages, investment income, and business earnings at a flat rate

Colorado has a flat state income tax of 4.63 percent on most income. This means whether you earn $30,000 or $300,000 per year, the state takes the same percentage. You pay this tax on wages from a job, self-employment income, rental income, capital gains, and most other money you receive — with some exceptions listed below.

The tax is withheld from your paycheck if you work for an employer, or you pay it directly when you file your state tax return if you're self-employed or have income your employer doesn't withhold from. Colorado's Department of Revenue collects the tax and uses it to fund schools, roads, and state services.

Key Takeaways

  • Colorado's state income tax rate is 4.63 percent on most types of income, applied equally to all earners regardless of how much they make.
  • Your employer withholds the tax from your paycheck automatically if you work as an employee; self-employed people pay it when they file their return.
  • Social Security benefits, certain retirement distributions, and military pay have special rules that may reduce or eliminate the tax you owe.
  • You file Colorado taxes using Form 104, which you submit to the Department of Revenue by April 15 each year unless you request an extension.
  • If you move to Colorado or leave the state, you only pay tax on income earned while you were a resident.

What income is taxed and what is not

Colorado taxes most money you receive, but a few categories are partially or fully exempt. Social Security benefits are not taxed by Colorado, even though they may be taxed by the federal government. Military retirement pay and certain military survivor benefits are also exempt from Colorado tax.

Some retirement income gets special treatment. If you receive a pension from a government employer — such as a teacher's pension or police retirement — Colorado does not tax it. Private pensions and distributions from IRAs and 401(k)s are taxed as regular income. Distributions from a Roth IRA are not taxed if you meet the rules for may have access to withdrawals.

Capital gains — the profit you make when you sell an investment like stock or real estate — are taxed as regular income at the 4.63 percent rate. Interest from savings accounts and bonds is also taxed. Unemployment benefits are taxed by Colorado.

How withholding works and what to do if too much is taken

When you start a job, you fill out a Form W-4 to tell your employer how much tax to withhold from each paycheck. The more allowances you claim, the less tax is withheld. If you claim too few allowances, you'll have too much withheld and receive a refund when you file. If you claim too many, you may owe money at tax time.

You can change your withholding at any time by submitting a new Form W-4 to your employer's payroll department. This is useful if your life changes — you get married, have a child, take a second job, or your spouse starts working. Adjusting your withholding during the year can help you avoid a large refund or a large bill in April.

If you have income that is not subject to withholding — such as self-employment income, rental income, or investment income — you may need to make estimated tax payments to Colorado four times per year. These payments are due in April, June, September, and January. The Department of Revenue provides a worksheet to calculate how much you should pay.

Filing your Colorado tax return

You file your Colorado state tax return using Form 104, the Colorado Individual Income Tax Return. The form is due by April 15 each year, the same deadline as your federal return. If you file your federal return late using an extension, your Colorado return is also extended to the same date.

You can file on paper by mailing Form 104 to the Colorado Department of Revenue, or you can file electronically through the state's online system or through tax software. E-filing is faster and the state processes it more quickly. If you owe money, you can pay by check, electronic transfer, or credit card (though credit card payments include a fee).

You must file a Colorado return if you earned income in the state and your income exceeds the filing threshold. The threshold depends on your age and filing status — for example, a single person under 65 must file if they earned more than $12,950 in 2023, though this amount changes each year. Even if you don't have to file, you should file if you had taxes withheld, because you may receive a refund.

Residency and when you pay Colorado tax

You pay Colorado income tax only on money you earned while you were a resident of the state. Residency is determined by where you live for most of the year. If you move to Colorado partway through the year, you pay tax only on income earned after you became a resident. If you move out of Colorado, you pay tax only on income earned before you left.

If you work in Colorado but live in another state, you may owe Colorado tax on your wages. Colorado taxes income earned within the state regardless of where you live. However, you may be able to claim a credit on your home state's return for taxes paid to Colorado, so you don't pay twice on the same income.

Military members stationed in Colorado are treated as residents for tax purposes only on income from their military service. Income from other sources may be taxed by their home state instead. If you're military, check with a tax professional about your specific situation, because the rules are complex.

Deductions and credits available to Colorado taxpayers

Colorado allows you to claim the standard deduction, which reduces the amount of income you pay tax on. The standard deduction amount depends on your age and filing status and changes each year. For 2023, a single person under 65 could deduct $14,500. You can also itemize deductions if they exceed the standard deduction, though most people benefit from the standard deduction.

Colorado offers several tax credits that reduce the tax you owe directly. The Colorado Child Care Dependent and Care Credit helps working parents pay for childcare. The Colorado Earned Income Tax Credit provides money back to low-income workers. The Property Tax/Rent/Heat Credit helps seniors and disabled people with housing costs. You claim these credits on your tax return.

Some credits are refundable, meaning you receive money back even if you owe no tax. Others are non-refundable, meaning they can only reduce the tax you owe to zero. Check the instructions for Form 104 or speak with a tax professional to see which credits apply to your situation.

Frequently Asked Questions

Do I have to pay Colorado income tax if I'm retired?

It depends on the source of your retirement income. Social Security is not taxed. Government pensions (like teacher or police pensions) are not taxed. Private pensions, IRAs, and 401(k) distributions are taxed at 4.63 percent. If your only income is Social Security and a government pension, you may owe no Colorado tax.

What happens if I don't file a Colorado tax return?

The Department of Revenue can assess penalties and interest on unpaid taxes. If you owe money and don't file, the debt grows. If you had taxes withheld and don't file, you simply won't receive your refund. If you haven't filed in past years, you can still file late returns to claim refunds, though there are time limits.

Can I deduct federal income tax from my Colorado taxes?

No. Colorado does not allow you to deduct federal income tax paid. You calculate Colorado tax based on your income after the standard deduction or itemized deductions, but federal tax is not deductible.

Do I owe Colorado tax if I worked there for only part of the year?

Yes, but only on income earned while you were a Colorado resident. If you moved to Colorado in June, you owe tax on income from June through December. If you moved out in September, you owe tax only on income through August. Your W-2 or 1099 will show the income earned in Colorado.

What if I have income from multiple states?

You file a return in each state where you earned income. Colorado taxes income earned in Colorado. Your home state taxes income earned there. You may be able to claim a credit on one return for taxes paid to the other state to avoid paying twice on the same money. A tax professional can help you sort this out.