Colorado collects state income tax on wages, investment income, and business profits

Yes, Colorado has a state income tax. The state taxes wages you earn from a job, interest and dividends from investments, self-employment income, and retirement distributions. The current tax rate is a flat 4.40% on all taxable income, regardless of how much you earn. This rate has been in place since 2022 and applies equally to residents and non-residents who work in Colorado.

Colorado's income tax is separate from federal income tax. You file both a federal return (Form 1040) and a Colorado state return (Form 104) if you lived in Colorado on December 31 of the tax year or earned income there during the year. The state return uses information from your federal return but has its own rules about what counts as taxable income and what deductions you can claim.

Key Takeaways

  • Colorado taxes all residents and non-residents who earned income in the state at a flat rate of 4.40%.
  • You must file a Colorado state return (Form 104) in addition to your federal return if you lived in Colorado on December 31 or earned income there during the year.
  • Colorado allows a standard deduction that reduces your taxable income, similar to the federal standard deduction but with different amounts.
  • Retirement income, including Social Security and pension distributions, is subject to Colorado state tax unless it qualifies for a specific exemption.

Who has to file a Colorado state return

You must file a Colorado return if you were a resident on December 31 of the tax year, even if you had no income. You also must file if you earned income in Colorado during the year but did not live there on December 31. Non-residents who worked in Colorado for any part of the year owe tax on that Colorado income only.

Your filing requirement depends on your income level and filing status. For 2023 tax returns, a single person with standard deductions must file if their income exceeds $14,500. A married couple filing jointly must file if their combined income exceeds $29,000. These thresholds change each year. If you are claimed as a dependent on someone else's return, the rules are stricter — you may have to file even with lower income.

Colorado standard deduction and tax brackets

Colorado uses a standard deduction to reduce the income you pay tax on. For 2023, the standard deduction is $3,850 for single filers and $7,700 for married couples filing jointly. These amounts increase slightly each year. You can claim the standard deduction instead of itemizing deductions, which is what most people do.

Because Colorado has a flat tax rate of 4.40%, there are no tax brackets. Your entire taxable income — after subtracting the standard deduction and any other deductions you claim — is taxed at the same rate. This differs from federal income tax, which uses multiple brackets that increase as your income rises.

Retirement income and Social Security in Colorado

Colorado taxes most retirement income, including distributions from 401(k)s, IRAs, and pensions. However, the state offers a pension exemption for certain types of retirement income. If you are age 55 or older and receive income from a pension, annuity, or retirement plan, you may be able to exclude up to $24,000 of that income from Colorado taxation (for 2023). The amount changes yearly.

Social Security benefits are not taxed by Colorado, even though they may be taxed at the federal level. If you receive Social Security, you do not report it on your Colorado return. Military retirement pay and certain other government pensions may have different rules, so check with the Colorado Department of Revenue if you receive those types of income.

How to file your Colorado state return

You file your Colorado return using Form 104 (Colorado Individual Income Tax Return) or Form 104-EZ if you have straightforward income. You can file by mail, electronically through tax software, or through a tax preparer. The Colorado Department of Revenue maintains a list of free tax preparation programs if your income is below a certain threshold.

Your Colorado return is due on the same date as your federal return — typically April 15. If you file your federal return late or request an extension, your Colorado return is also extended. You can request a federal extension on Form 4868, which automatically extends your Colorado important date as well. If you owe Colorado tax, interest and penalties begin accruing if you do not pay by April 15, even if you filed an extension.

Refunds and estimated tax payments

If you overpaid Colorado tax during the year through withholding, you will receive a refund when you file your return. The state processes refunds within four to six weeks of receiving your return if you file electronically, or longer if you file by mail. You can check the status of your refund on the Colorado Department of Revenue website using your Social Security number and the amount of your refund.

If you are self-employed or have income that is not subject to withholding, you may need to make estimated tax payments to Colorado four times per year. These payments are due on April 15, June 15, September 15, and January 15. If you do not pay enough through withholding and estimated payments, you may owe a penalty when you file, even if you ultimately do not owe additional tax.

Special situations: Non-residents and part-year residents

If you moved to Colorado during the year, you are a part-year resident. You report income earned before you moved on your federal return but only report Colorado income earned after you became a resident on your Colorado return. You must file both a federal return and a Colorado return to properly report this split income.

Non-residents who worked in Colorado must report only the income earned in Colorado on their state return. If you lived in another state but worked in Colorado, you file a Colorado return for that Colorado income and a return in your home state for income earned there. Some states offer credits to prevent double taxation, so check your home state's rules.

Frequently Asked Questions

Does Colorado tax retirement income differently than wages?

Colorado taxes retirement income at the same 4.40% rate as wages, but offers a pension exemption for people age 55 and older. You can exclude up to $24,000 of pension or retirement plan income (2023 amount). Social Security is not taxed by Colorado. Military retirement and some government pensions have special rules.

What if I moved to Colorado partway through the year?

You are a part-year resident. Report income earned before you moved to your home state, and income earned after you moved to Colorado on your Colorado return. You file both a federal return and a Colorado return, each reporting only the income earned during the time you lived in that state.

Can I claim the federal standard deduction and the Colorado standard deduction?

Yes. The Colorado standard deduction is separate from the federal standard deduction. You claim the federal deduction on your federal return and the Colorado deduction on your Colorado return. Colorado's standard deduction is lower than the federal amount, so your Colorado taxable income will be higher than your federal taxable income.

What happens if I do not file a Colorado return when I should have?

The Colorado Department of Revenue can assess penalties and interest on unpaid tax. If you owe tax and do not file, penalties start at 5% of the unpaid amount and increase over time. If you filed late but did not owe tax, you generally do not face a penalty. File as soon as you realize you missed a year.

Is Colorado income tax withheld from my paycheck automatically?

Yes, if you work in Colorado, your employer withholds state income tax from your paycheck based on the W-4 form you complete. The amount withheld depends on your filing status, number of dependents, and other income. You can adjust your withholding by submitting a new W-4 to your employer if you want more or less tax withheld.