Colorado Individual Income Tax: What Denver Residents Need to Know

Colorado has one of the more straightforward income tax systems in the country — a flat rate that applies to nearly all individual filers. But straightforward doesn't mean simple, and there are enough Colorado-specific rules to make it worth understanding the basics.

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Colorado's Flat Tax Rate

Colorado taxes individual income at a flat rate — the same percentage applies regardless of how much you earn. This is different from the federal system, which uses graduated brackets. Colorado's rate has been adjusted in recent years through TABOR refunds and legislative changes, so verify the current rate with the Colorado Department of Revenue or your CPA.

Colorado Taxable Income

Colorado starts with your federal adjusted gross income (AGI) and then makes its own adjustments. Most federal deductions carry over, but Colorado has its own additions and subtractions:

  • Colorado Subtractions Include: Certain pension and Social Security income, interest on U.S. government obligations, and military pay
  • Colorado Additions Include: Some state and local bond interest that's federal-exempt but Colorado-taxable

Colorado does not allow itemized deductions the same way federal does — the state uses its own standard deduction, which may differ from the federal amount.

The Colorado SALT Workaround

Colorado has enacted a pass-through entity (PTE) tax election — a mechanism that allows owners of S-Corporations, partnerships, and LLCs to get around the federal $10,000 SALT (state and local tax) deduction cap.

For eligible business owners, this can represent a meaningful federal tax savings. If you own a pass-through entity, this is worth a direct conversation with your CPA.

Filing Status and Residency

Colorado taxes both residents and non-residents on Colorado-source income. If you moved to or from Colorado during the year, you'll file as a part-year resident. This can complicate things — particularly if you had income from multiple states.

Denver-area residents who work in neighboring states (or vice versa) should be aware of potential multi-state filing obligations.

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