Withholding Taxes: Colorado

Federal law and guidance on this subject should be reviewed together with this section.

Authors: Stuart R. Buttrick, Mary L. Will and Tareen Zafrullah, Faegre Drinker Biddle & Reath LLP

Summary

• Employers must withhold Colorado income tax from employee compensation if the compensation is subject to federal income tax withholding and the employee is a Colorado resident, or is a nonresident of Colorado performing services in Colorado. Certain nonresident motion picture and television production employees and nonresidents who work sporadically in Colorado are exempt from Colorado income tax withholding. See Withholding on Residents and Nonresidents.
• Colorado employers determine withholding using IRS Form W-4, along with Colorado worksheet DR 1098. Employees have the option of completing Form DR 0004, Colorado Employee Withholding Certificate, to help refine their Colorado withholding; the form does not replace federal Form W-4 for Colorado withholding but employers are required to provide it to employees who ask to adjust their withholding See Employee Withholding Forms.
• The withholding rate on supplemental wage payments, such as bonuses, is calculated differently depending on when the supplemental wage payments are made. See Supplemental Wages.
• Colorado employers must provide all employees who receive a Colorado Form W-2 with an annual written notice of the availability of the federal and state earned income tax credits and the federal and state child tax credits. See Employee Tax Credit Notices.
• Employers are required to keep records of wages paid and taxes withheld for a certain number of years. See Recordkeeping Requirements.
• Localities including Denver, Glendale and Sheridan have local requirements pertaining to income tax withholding. See Local Requirements.