Tax in Colorado: a complete guide
If you want to understand the Colorado tax system more clearly, you’re in the right place. This tax guide will explore your potential tax burden as a resident of the Centennial State, covering everything from income tax to sales tax to property tax.
Colorado income tax
Colorado is one of just 11 locations in the US, alongside Arizona and Illinois, charging a flat income tax rate at the state level. That rate currently stands at 4.4 percent for both individual and corporate income. Before 2022 and the successful passing of Proposition 121 (the State Income Tax Rate Reduction Initiative), it was a slightly higher 4.55 percent.
Whatever your salary, you’ll be taxed 4.4 percent on your earnings in Colorado. Local income taxes will also apply in certain areas, with the state being one of eight in the US to employ the direct collection method for local taxes.
You’ll need to account for all of this before you decide if Colorado is the place for you, as well as accounting for progressive federal taxation across seven income brackets:
|Federal income tax rate||A single person OR a married person/ registered domestic partner filing separately||A married person/ registered domestic partner filing jointly OR a qualifying widower||A head of household|
|10 percent||$0 to $11,000||$0 to $22,000||$0 to $15,700|
|12 percent||$11,001 to $44,725||$22,001 to $89,450||$15,701 to $59,850|
|22 percent||$44,726 to $95,375||$89,451 to $190,750||$59,851 to $95,350|
|24 percent||$95,376 to $182,100||$190,751 to $364,200||$95,351 to $182,100|
|32 percent||$182,101 to $231,250||$364,201 to $462,500||$182,101 to $231,250|
|35 percent||$231,251 to $578,125||$462,501 to $693,750||$231,251 to $578,100|
|37 percent||$578,126 or more for single people, $346,876 or more for married people/domestic partners filing separately||$693,751 or more||$578,101 or more|
To give an idea of what you might pay: the average annual salary in Colorado is $56,036. For a single-income household or an individual living alone, this would translate to $11,296 in income tax (inclusive of federal tax, FICA tax and state tax).
Colorado sales tax
Retail sales of physical items and certain taxable services in Colorado are subject to a 2.9 percent statewide sales tax rate. Similarly to income tax, local jurisdictions and areas can also charge their own sales tax on top of this 2.9 percent. The maximum local sales tax rate is 8.3 percent, with the average combined sales tax (statewide and local) at 7.78 percent.
Certain items, such as groceries and prescription drugs, are exempt from this type of tax. Meanwhile, restricted items like alcohol, tobacco and marijuana (which can be purchased legally in Colorado) are taxed at different rates depending on product specifics:
|Any tobacco products other than cigarettes||50 percent of the manufacturer’s price|
|Beer||$0.08 per gallon|
|Cigarettes||$1.94 per pack (this may increase in 2024)|
|Liquor||$2.28 per gallon|
|Marijuana||15 percent state marijuana sales tax, 15 percent excise tax and regular state and local sales taxes|
|Vapor products||As of January 2023, 0 percent of the manufacturer’s price|
|Wine||$0.28 per gallon|
Colorado property tax
The Colorado property market is quite diverse, with homes in bustling cities like Denver and Boulder valued very differently from rural properties in places like Eagle County. Averaging things out, we can see that the median property value is $237,800, with the median annual property tax amount coming in at $1,437.
The amount of property tax you’ll be expected to cover if you own a home in the state depends a lot on where you live in Colorado, from about 0.76 percent of median home value down to about 0.3 percent. Here are some examples:
|Colorado county||Median annual property tax payment|
Colorado estate tax
Effective estate planning is a must, especially if you’re getting older and possibly hoping to retire to the beautiful natural paradise of Colorado. Luckily for you, there is no estate or inheritance tax in place at the state level in Colorado. This means you’ll only have to account for federal rules and requirements as you organize this part of your life.
Only a few US states tax inheritance, and Colorado hasn’t been among them since the early 2000s. For advice on minimizing federal estate tax and leaving your loved ones as much as possible, we’d recommend speaking to a professional financial advisor and tax planner.
Colorado motor tax
Motor purchases in Colorado fall under the sales tax umbrella. Whether buying new or used, you must pay that 2.9 percent sales tax and any applicable local sales taxes before registering a vehicle in your ownership. As for fueling your car? Gas is taxed at $0.22 per gallon – one of the lowest gas tax rates in the US – and is subject to the Road Usage Fee as of April 2022.
There’s a special fuel excise tax of $0.205 per gallon for everything but liquefied petroleum gas (LPG), liquefied natural gas (LNG) and compressed natural gas (CNG). Special fuel is also subject to the Road Usage Fee and the Bridge and Tunnel Fee.
Colorado retirement tax
Colorado is considered very retiree friendly. As in many states, Social Security benefits are tax-free. But even better, the flat rate of state income tax isn’t charged on any pension income up to $20,000 per year per person for retirees between 55 and 64. This tax-free amount for ages 65 and up rises to $24,000 per year.
If, say, you’re over 65 and making a combined retirement income from your Individual Retirement Account (IRA) and Social Security of $40,000 per year ($15,000 Social Security, $25,000 IRA), you’ll only pay $1,786 in tax ($1,655 federal, $141 state). If you’re under the tax-free threshold, you’ll pay nothing.
For further tax guidance and to ensure you’re not paying more tax than you need to, it’s wise to speak to an expert. A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.