Tax Shop
Tax Shop
Charles Trautman, EA · Since 1969
Colorado income tax seriesHighlightsHow Colorado income tax works (2025)What’s new for 2025Changes coming for 2026RetireesCharitable giving over $300,000TABOR explainedBehind on Colorado taxes

Colorado income tax: the highlights

Ten things that make Colorado different, and why they matter to you.

Colorado’s income tax looks simple from the outside: one flat rate, no local income taxes, a return that starts from your federal numbers. Underneath, it has its own personality. The constitution limits what the state can keep, voters set the rate, credits switch on and off with the economy, and a few groups of people get treated very differently here than they would across the state line. If you read nothing else about Colorado tax, read this.

Current as of October 2026. For the line-by-line rules see how Colorado income tax works.

1

One flat rate, and the voters own it

Every Colorado taxpayer pays 4.40% on taxable income, from the first dollar to the last. The constitution requires a single rate, and under TABOR the legislature cannot raise it without a vote of the people. Voters have cut it twice at the ballot box since 2020 (from 4.63% to 4.55%, then to 4.40%), and in November 2026 they’ll decide Amendment 87, which would replace the flat tax with six brackets from 3.7% to 8.4%.

Why it matters: there is no bracket planning in Colorado today. Shifting income between years saves nothing on the state side unless you’re near one of the cliffs below. That could change in 2027.

2

TABOR: when the state collects too much, you get it back — sometimes

The Taxpayer’s Bill of Rights caps state revenue at inflation plus population growth. Anything above the cap is refunded, and the legislature decides how: a temporary rate cut, a flat sales tax refund by income tier, or reimbursing counties for the senior property tax exemption first. The result is that your “refund” swings wildly: $750 per person in 2022, $177–$565 in 2024, $19–$59 in 2025, and nothing at all for 2026 because revenue came in under the cap.

Why it matters: you only get the refund if you file, even with no income. And several big credits (below) are switched on or off by the same surplus math. The full story of TABOR and its refunds.

3

Credits that come and go with the economy

Colorado has started tying tax credits to the state’s revenue forecast. The family affordability credit, worth up to $3,273 per young child in 2025, is gone for 2026 because the forecast missed its trigger. The earned income credit match dropped from 50% to 25% for the same reason. The EV, heat pump and e-bike credits were cut in half for 2026 by a growth trigger. None of this required a vote; it was written into the credits from the start.

Why it matters: a family that got a $6,000 state refund in spring 2026 may get a fraction of that in spring 2027 with no change in their situation. Don’t budget on last year’s Colorado refund.

4

Colorado follows federal law automatically, until the legislature says no

Your Colorado return starts from federal taxable income, and Colorado adopts federal tax law changes as they happen (“rolling conformity”). So when Congress created deductions for tips, overtime and seniors in July 2025, they cut Colorado tax too, instantly, without the legislature doing anything. The legislature then picks and chooses what to take back: overtime gets added back starting 2026; tips and the senior deduction do not; the QBI addback for high earners was made permanent.

Why it matters: every federal change ripples into Colorado, and the ripple can be undone a year later. Overtime earners in particular should expect Colorado tax on overtime in 2026 even though the IRS doesn’t tax it.

5

One of the friendliest states for retirees

Colorado does not tax Social Security at all once you’re 65, and since 2025 not between 55 and 64 either if your AGI is $75,000 or less (single) / $95,000 (joint). Each person 65 or older also gets up to $24,000 for pension, IRA and 401(k) income ($20,000 from 55 to 64), but that cap is shared: the Social Security subtraction uses it up first, and only the rest is left for other retirement income. Military retirees under 55 get $15,000. Add the federal standard deduction and the new $6,000 senior deduction, and a retired couple drawing $50,000 of Social Security and $48,000 of IRA withdrawals can still owe Colorado nothing.

Why it matters: if you’re weighing where to retire, Colorado is competitive with the no-income-tax states for ordinary retirement income. And if you’re 55 to 64, the $75,000 / $95,000 line is a cliff worth planning around. The full guide for Colorado retirees.

6

The $300,000 cliff: where your deductions disappear

Once federal AGI hits $300,000, Colorado adds back most of your federal standard or itemized deduction. For 2025 the allowance is $12,000 single / $16,000 joint; for 2026, under Proposition MM, it falls to $1,000 / $2,000. At $500,000 single / $1,000,000 joint, business owners also add back the entire 20% qualified business income deduction. There is no phase-in; one dollar over the line triggers the whole thing. Colorado calls this the deduction addback, and it takes charitable gifts along with everything else: above the line, a gift to your church saves no Colorado tax at all. Read how the cliff treats charitable giving.

Why it matters: a bonus, a stock sale or a Roth conversion that pushes you over $300,000 in a single year can cost roughly $1,000–$2,000 of Colorado tax that careful timing would have avoided.

7

Big, refundable credits for working families and care workers

Colorado has quietly built one of the larger state family-credit systems in the country: a child tax credit of up to $1,200 per child under 6, a child care credit of 50% of the federal credit (70% from 2026), an EITC match, the family affordability credit in surplus years, and new $1,200 credits for child care and long-term care workers. All of them are refundable and most are available to ITIN filers. A low-income family can get several thousand dollars from Colorado while owing no Colorado tax.

Why it matters: if you have young kids and modest income, filing a Colorado return is worth real money even when you owe nothing. National software and chain preparers miss these regularly.

8

Business owners: the SALT Parity election

The federal cap on deducting state and local taxes ($40,000 from 2025) hits owners of profitable S corporations and partnerships. Colorado lets the business elect to pay the 4.40% at the entity level, where it’s fully deductible federally, and the owners get a credit on their personal returns. The trade: the owners add back their QBI deduction for Colorado purposes. It has to be elected on the business return every year.

Why it matters: for an owner with $300,000 of pass-through income, the election can be worth a few thousand dollars of federal tax a year. It’s a calculation, not a reflex; sometimes the QBI addback costs more than the federal savings.

9

People move here, and the move is where returns go wrong

Colorado taxes part-year residents and nonresidents only on Colorado-source income, apportioned on Form DR 0104PN. The hard questions are the ones a national preparer doesn’t ask: when did you actually become a resident, which state gets the stock options that vested across the move, where was the house sold, is the pension sourced to the state you live in now (it is), and does your old state give a credit for Colorado tax or the other way around.

Why it matters: move-year returns are the ones we amend most often for new clients. Get the residency date and the income sourcing right the first time.

10

What Colorado doesn’t do

No local income tax (a few cities charge a small occupational tax through payroll). No separate Colorado standard deduction or exemptions. No tax on Colorado municipal bond interest, but other states’ bonds are taxed. No estate or inheritance tax. No extension form; the six months is automatic. And no extension to pay: 90% has to be in by April 15.

Why it matters: most of the complexity people expect from a state return isn’t here. The complexity is in the credits, the cliffs, and the year-to-year changes, which is what the rest of this series covers.

Go deeper

1

How it works, 2025

The rate, TABOR refund table, every addition, subtraction and credit with amounts, and the mistakes we fix most often.

2

What’s new for 2025

The changes on the return you file in 2026, plus a rumor check on the things that didn’t change.

3

Coming in 2026

Enacted law for next year, the 2027 changes already signed, and the November ballot measures.

4

Colorado for retirees

The Social Security and pension subtractions, how the shared cap really works, the 55–64 cliff, and the PTC rebate.

5

Charitable giving over $300,000

Why a gift to charity stops saving Colorado tax above the cliff, what other states did, and what donors can still do.

6

TABOR explained

The 1992 amendment, the man who wrote it, and how surplus refunds have shown up on Colorado returns ever since.

7

Behind on Colorado taxes

What Colorado does when you don’t file, what it costs, the four-year refund window, and how to catch up.

Questions about your Colorado return?

We prepare federal and Colorado returns together, year round, in Lone Tree.

Start Here 303-734-1040

Sources and where to check

These pages are general information, current as of October 2026, and are not advice about your situation. Colorado law changes every session, and the Department of Revenue updates its publications through the year. Confirm anything that matters to you at tax.colorado.gov or call us.