Answering if Colorado Has State Taxes
Navigate Colorado's tax system by understanding how its flat rate, residency status, and state-specific adjustments affect your personal tax liability.
Colorado imposes several types of state-level taxes on its residents and businesses. The primary taxes are a state income tax, which applies to earnings from various sources, and a statewide sales tax on the purchase of most goods and some services. The state also has a system for property taxes, which are administered at the local level but guided by state-level assessment rates. Understanding the basics of each is a starting point for navigating financial obligations within the state.
Overview of Colorado State Taxes
Colorado’s tax structure uses a flat tax system for individual and corporate income, meaning a single rate applies regardless of income level. This method differs from the progressive tax systems in many other states, where tax rates increase as income rises.
The state sales tax rate is 2.9%. However, local municipalities, counties, and special districts can levy their own sales taxes. This results in a combined sales tax rate that can be significantly higher, with an average combined rate of 7.81%.
Property taxes in Colorado are collected locally, but the state sets the assessment rates. These taxes are applied to the assessed value of real property, such as homes and commercial buildings. The state’s average effective property tax rate on owner-occupied housing is approximately 0.45%.
Who Is Required to File a Colorado Income Tax Return
Whether you need to file a Colorado income tax return depends on your residency status and gross income. The state defines three residency categories for tax purposes, which dictates the income subject to Colorado tax.
- Full-year residents consider Colorado their permanent home or live in the state for more than six months of the year. They are taxed on all income, regardless of where it was earned.
- Part-year residents moved into or out of Colorado during the tax year. They are taxed on all income earned while a resident, plus any income from Colorado sources while a non-resident.
- Non-residents do not live in Colorado but have earned income from sources within the state, such as wages or rental income. They are only taxed on their Colorado-sourced income.
If you are required to file a federal income tax return and have any Colorado-source income, you must also file a Colorado return.
Calculating Your Colorado State Income Tax
The process of calculating your Colorado state income tax begins with your federal taxable income. Colorado uses a flat tax rate of 4.25% on your Colorado taxable income. To arrive at this figure, you must make certain additions and subtractions to your federal taxable income.
Common subtractions from federal taxable income include any state income tax refund that was included in your federal income, interest from U.S. government obligations, and a portion of Social Security benefits. For taxpayers aged 55 to 64, up to $20,000 in pension and annuity income may be deductible, and for those 65 and older, this deduction can be up to $24,000. Additions often include interest earned from municipal bonds issued by states other than Colorado.
After adjusting your income, you can apply any relevant state tax credits. A credit for many residents is the Taxpayer’s Bill of Rights (TABOR) refund, which returns surplus state revenue to taxpayers. Other credits target specific activities, such as the Child Care Contribution Credit, which encourages donations to qualifying child care facilities.
How to File and Pay Your State Taxes
Once you have calculated your tax liability, there are several methods for filing your return and submitting payment to the Colorado Department of Revenue. The most common method is electronic filing through the state’s Revenue Online portal or with approved third-party tax preparation software. E-filing typically results in faster processing and quicker receipt of any refund due.
For those who prefer to file by paper, tax forms and instructions are available for download on the Department of Revenue’s website. Completed paper returns should be mailed to the address specified in the form instructions.
If you have a balance due, payment can be made through electronic funds withdrawal at the time of e-filing or online with a credit or debit card, though a fee may apply. You can also mail a check or money order with a payment voucher. After filing, you can track the status of your refund on the Revenue Online website.