Do You Owe Colorado Remote Work Taxes as a Nonresident?

As remote work reshapes employment, understanding tax obligations for nonresidents working remotely is increasingly important. For those teleworking outside their employer’s home state, grasping potential tax liabilities is essential—especially for individuals who do not reside in Colorado but perform services for a Colorado-based company.

This article explores how nonresident workers may owe taxes to Colorado and the factors involved, offering insights for remote employees navigating this complex terrain.

Residency Status Factors

Residency status is central to understanding tax obligations for nonresidents. In Colorado, residency is determined by factors such as physical presence, the location of one’s permanent home, and the intent to remain in or return to the state. The “183-day rule” is particularly important: spending more than 183 days in Colorado during a tax year may classify someone as a resident for tax purposes. This is crucial for remote workers who might spend extended time in the state.

Domicile also plays a significant role. It refers to the place an individual considers their permanent home and intends to return to after any absence. Indicators like voter registration, vehicle registration, and the location of financial accounts help establish domicile. For example, maintaining a Colorado driver’s license or enrolling children in Colorado schools can signal a strong connection to the state, potentially impacting tax liabilities.

Nonresident Filing Triggers

Nonresident tax filing in Colorado depends on specific triggers, primarily the source of income. Colorado taxes nonresidents on income derived from Colorado sources, including wages for services performed in the state. For teleworkers, the location where the work is performed is key. Income earned entirely outside Colorado may not be taxable, but any work conducted within the state, even temporarily, could trigger tax obligations.

Under Colorado Revised Statutes 39-22-109, nonresidents must file a Colorado income tax return if they earn more than $1,000 from Colorado sources. This low threshold means even minimal work-related activities in the state may require filing. Nonresidents must also allocate income based on the proportion of work done in Colorado relative to total workdays.

Income Allocation for Telework

Allocating income for teleworkers is a critical aspect of tax compliance. Nonresidents working for a Colorado-based company must determine the portion of income subject to Colorado tax. A common method is the “duty days” approach, where income is allocated based on the ratio of days worked in Colorado to total working days in a tax year. This ensures only income tied to Colorado activities is taxed.

For instance, if a teleworker spends 30 out of 200 working days in Colorado, 15% of their income may be taxable. Accurate documentation, such as travel itineraries and work schedules, is essential to substantiate the allocation. Time-tracking tools can help maintain precise records and ensure compliance with Colorado’s tax rules.

Employer Withholding

Employers with nonresident remote workers must comply with Colorado’s withholding requirements. Colorado Revised Statutes 39-22-604 mandates that employers withhold state income tax from wages paid for services performed in Colorado, regardless of the employee’s residence. Any income sourced from Colorado activities is subject to withholding.

Employers must accurately calculate the portion of wages attributable to Colorado, requiring detailed tracking of employees’ work locations and schedules. Noncompliance can result in penalties, including fines and interest. Robust tracking systems can help employers meet their obligations and avoid costly errors.

Credits for Other States

Tax credits prevent double taxation for nonresidents who owe Colorado taxes on income earned remotely. Colorado allows nonresidents to claim a credit for income taxes paid to their home state on the same income. For example, a remote worker living in Utah but earning income from a Colorado employer can offset Colorado taxes by the amount paid to Utah, up to Colorado’s tax rate.

This credit, governed by Colorado Revised Statutes 39-22-108, cannot exceed the amount of Colorado tax imposed on the income. Taxpayers must provide documentation, such as their home state tax return and proof of payment, to claim the credit. While Colorado does not have reciprocity agreements with other states, its credit mechanism serves a similar purpose. Proper planning and accurate filings are essential to avoid errors, audits, or penalties and to ensure compliance across jurisdictions.