Colorado State Tax Guide: What You’ll Pay in 2024
Colorado taxes Social Security and retirement income but offers deductions depending on your age. The Centennial State has no estate or inheritance tax, relatively low property taxes and one of the lowest state sales taxes in the country; however, some municipalities levy a local sales tax.
The big picture:
- Income tax: 4.4 percent
Colorado has a flat individual income tax of 4.4 percent for the 2023 tax year, meaning that every resident pays the same rate, regardless of income level. Five cities, including Denver, also collect local income taxes. The tax is paid by people working in those cities, regardless of where they live.
- Property tax: 0.55 percent of a home’s assessed value (average)
Real estate taxes vary in Colorado, with an average tax rate of 0.55 percent of a home’s assessed value in 2021, according to the Tax Foundation.
- Sales tax: 7.81 percent (average combined state and local)
Colorado has one of the lowest state sales taxes in the country; however, some municipalities levy a local sales tax and it can be as high as 8.3 percent. The average combined sales tax rate is 7.81 percent, according to the Tax Foundation.
How is income taxed in Colorado?
Colorado taxes income at a flat rate of 4.4 percent.
Five cities – Denver, Aurora, Glendale, Greenwood Village and Sheridan – collect a local income tax, known as an occupational privilege tax. It is paid by employees who work in the municipality, regardless of where they live. In Denver, for example, employees earning at least $500 in a month will pay a $5.75 monthly tax on their income.
Watch the video below to learn how to identify your 2023 federal income tax brackets.
Are pensions or retirement income taxed in Colorado?
Money withdrawn from pensions, IRAs, 401(k) plans and other retirement plan income is subject to Colorado’s 4.4 percent income tax. People 65 and older may deduct up to $24,000 in pension and annuity income from their taxable income. Those ages 55 to 64 may deduct up to $20,000. The Colorado Department of Revenue has more information.
Railroad retirement benefits are exempt, and military retired pay is partially exempt. (Scroll down for more information on military benefits.)
The AARP Retirement Calculator can help you determine if you are saving enough to retire when — and how — you want.
What about investment income?
Colorado taxes investment income at 4.4 percent, the same rate as other income.
Does Colorado tax Social Security benefits?
Colorado is one of 12 states that tax Social Security benefits. However, Coloradans 65 and older can deduct federally taxable Social Security benefits from their taxable state income.
Those ages 55 to 64 can deduct up to $20,000 in retirement income, including Social Security. Retirement income above $20,000, including Social Security, is taxed at 4.4 percent, just like regular income. If you’re married filing jointly, you and your spouse can each claim the deduction. The Colorado Department of Revenue has more information.
You may pay federal taxes on a portion of your Social Security benefits, depending on your income. Up to 50 percent of your benefits will be taxed if you file an individual tax return and make between $25,000 and $34,000 in total income — or if you file jointly and as a household make $32,000 to $44,000 in total income. Up to 85 percent of your benefits will be taxed by the federal government if your total income is more than $34,000 individually or $44,000 as a couple filing jointly.
AARP’s Social Security Calculator can assist you in determining when to claim and how to maximize your Social Security benefits.
How is property taxed in Colorado?
Property tax is a local tax based on the value of your home, which is assessed by your county. Rates vary by county, but the average rate is .55 percent of the assessed value of your home, according to 2021 data from the Tax Foundation.
The highest median property tax bill in 2021 was $3,400 in Pitkin County, while the lowest was $394 in Crowley County, according to Tax Foundation data.
Property taxes are due twice a year: the last day of February and June 15.
The Colorado Department of Local Affairs has more information about how your tax bill is calculated, how your property is assessed and how to appeal.
What about sales tax and other taxes?
- Sales and use tax: Colorado has a state sales tax of 2.9 percent. Some municipalities also levy a local sales tax, with a maximum rate of 8.3 percent.
- Groceries, prescription drugs and medical equipment are exempt from sales tax, but nonprescription drugs are generally taxable. Low-emitting heavy vehicles are also free from Colorado sales tax. Food sold in restaurants is taxable, as are short-term rentals and hotel accommodations.
- Gas and diesel: Coloradans pay a gas tax of 22 cents per gallon at the pump, in addition to fees and surcharges totaling 4 cents per gallon. This includes a 3-cents-per-gallon road usage fee, which will increase to 4 cents per gallon on July 1. Motorists do not pay sales tax on gasoline.
- Alcohol: Beer is taxed at 8 cents per gallon, wine at 28 cents per gallon and spirits at $2.28 per gallon. The tax is paid by the distributor and included in the retail price. State sales tax is also charged on alcohol purchases.
- Lottery prizes: Colorado levies a 4 percent state tax on lottery prizes, according to the Colorado Lottery. The lottery withholds the tax for prizes over $5,000, along with federal taxes.
Will I or my heirs have to pay inheritance and estate tax in Colorado?
Colorado does not have an inheritance tax nor an estate tax.
Are there any tax breaks for older Colorado residents?
If you are 65 or older, or a veteran with a disability, you may be eligible for Colorado’s senior property tax exemption. If you qualify, you will be exempt from paying taxes on 50 percent of the first $200,000 of the actual value of your home. You must have owned and lived in your home for at least 10 consecutive years. The Colorado Department of Local Affairs has more information.
Colorado offers a Property Tax, Rent, Heat (PTC) Rebate of up to $1,112 a year to help seniors with lower incomes and people with disabilities pay their property tax, rent and/or heat expenses. Eligible Coloradans include people 65 and older, surviving spouses 58 and older and people with disabilities of any age. To qualify, your income must be less than $18,026 ($24,345 if you are married filing jointly). The deadline to apply for the 2023 tax year is April 15, 2024.
If you purchased long-term care insurance and meet income requirements, you may be eligible for a tax credit of up to $150 per policy.
If you made modifications to your home, such as installing ramps or widening doorways to make it more accessible to someone with a disability, you may be eligible for an income tax credit of up to $5,000. The Home Modification Tax Credit is available for each person in your family with a disability or impairment. Work done during tax years 2019 through 2028 is eligible.
Coloradans of any age may be able to deduct contributions made to a 529 college savings plan. The Department of Revenue has more details.
Are military benefits taxed in Colorado?
Yes, but veterans may be exempt from paying Colorado income tax on some military retirement pay. The exact amount depends on your age.
Retired veterans under age 55 may subtract up to $15,000 from their taxable income in 2023. Older retired service members may claim the state’s subtraction for Social Security benefits, pensions and annuities. Those 55 to 64 can subtract up to $20,000; retirees 65 and older can subtract up to $24,000.
Visit the Colorado Department of Revenue website for more information.
Military pay is taxable in Colorado, except for certain pay received while serving in a combat zone.
What is the deadline for filing Colorado state taxes in 2024?
The deadline for filing a Colorado state tax return is April 15, 2024. Colorado offers an automatic six-month extension to file. However, you must pay 90 percent of any taxes you owe by April 15 to avoid penalties.
For help estimating your annual income taxes, use AARP's 1040 Tax Calculator.
Visit the Colorado Department of Revenue website for information on how to file your return, make payments or check your refund status online.
Sharon Waters, a former CPA, has written for Wired.com and other publications.
