Colorado Income Tax Tips

I live in Colorado. Most personal finance and achieving financial independence applies to everyone, nationwide. When it comes to taxes though, there is a great deal of variation among states. I may dig into some other states as time provides, but for now, here are some 2022 Colorado Income Tax Tips for the taxes filing in early 2023.

Colorado Income Tax Rate 2022

The best part of writing about 2022 Colorado Income Tax Rates is that the state has a flat tax. In other words, everyone in Colorado pays the same tax rate regardless of how rich or poor you are. Before you get all up in arms, percentages are by their nature, progressive. That is, someone will $500,000 income paying 5% will pay more taxes ($5,000) than someone paying $100,000 ($1,000).

The worst part of writing about Colorado income taxes is that unlike the drawn-out battles of doom in the U.S. Congress to change anything in the Federal income taxes, Colorado’s income taxes change all the time, sometimes automatically. Such is the case for 2023 where Colorado’s TABOR law will make the Colorado Income Tax Rate for 2022 down to 4.4% from 4.5% in 2021. In addition, Coloradoans will get a TABOR tax refund. – Don’t get too excited. It’s usually peanuts.

• Colorado Income Tax Rate 2022 = 4.4%
• Colorado Income Tax Rate 2021 = 4.5%
• Colorado Income Tax Rate 2020 = 4.55%

Federal income tax numbers for 2022 were recently released. You can find the 2021 standard deduction here.

How Are Colorado Income Tax Rates Calculated?

Back in 1992, Coloradoans were asked to approve an amendment to the constitution that required a vote before raising income taxes. I remember, because 1992 was the first election I was allowed to vote in. Now, revisionists will tell you that all the other stuff in the Taxpayer’s Bill of Rights was also widely touted. That is a lie. In fact, TABOR, as it is called, was crammed with so much stuff that almost no one knew about ALL of the things that they were voting for, when all they really wanted to do was make there be a vote before any tax increase. (A similar bill failed in California, which began a long trend of national money flowing into votes about Colorado taxes. If you can’t get a big state like Texas, New York, or California to do what Grover Norquist wants, at least it only takes a few million to run an election in Colorado.)

Anyway, no one has tried to raise taxes since, so yea!

However, TABOR has formula built into it that requires refunds (sometimes) and tax-rate changes (sometimes). This is a dumb way to run a railroad, and everyone knows it, but Republicans, “Taxes bad,” and Democrats, “Taxes help,” and no one is all that interested in trying to repeal the whole thing. (Parts have been chopped off, and plenty of cities, counties, and other local government entities have asked their voters to opt out of these calculations.)

The calculation itself has something to do with population growth and inflation. The net effect is that in good times we all get these little rebates, and in bad times, the so-called “ratchet effect” ensures draconian cuts, which is exactly the opposite of what you want to do when the economy is bad.

The numbers are all calculated based on data from June, because Colorado’s fiscal year runs June to June. (So, State employees pick new benefits in July instead of January, like everyone else.)

Filing Colorado Income Taxes

Like many states, Colorado starts with your federal income taxes to start your income tax Colorado 2022 return. By using numbers from your federal income taxes, Colorado can greatly reduce its Department of Revenue staff dedicated to tax cheating, because the IRS does it for them. If you like on your federal income taxes, the IRS has all these computers, and agents to figure it out. Since Colorado just uses those numbers, they don’t need to bother. Yes, the Colorado Department of Revenue checks your Colorado State income taxes against what you file with the IRS, so don’t report one number on your U.S. income tax, and a lower number on your Colorado income tax.

The main Colorado income tax brackets 2022 are 4.4% but the Colorado income tax bracket for 2021 is 4.5%.

There is a Colorado Alternative Minimum Tax of 3.47% that I won’t go into here because it isn’t very common. If you do need to pay it, TurboTax, or whatever will figure it out. If it’s more complicated than that, you probably already have an accountant or tax attorney.

You can mail your taxes, but it is easier to file Colorado income tax online. It is free to file your Colorado income taxes online, although tax preparation software like TaxCut, TaxSlayer, and TurboTax may charge you a fee to file electronically for you, even after you pay extra for the State package. My advice is to print out your forms for your records and then just type the numbers in for free.

How To Do Colorado Income Taxes

To File Colorado income taxes, you use Form DR 104. (Department of Revenue = DR 104 = kind of like 1040 but not) Generally you will need to file (or at least know the numbers) your Federal 1040, or other form to be able to complete your Colorado taxes which rely on number from your filed income taxes. Other than that, you can file your online Colorado taxes as soon as you are ready.

Colorado income taxes were simple to file, but there have been some changes that make it a tiny bit tougher, but don’t get discouraged. The whole last page was basically asking if you want to donate your refund to one of the charities listed. It got so out of hand; they moved it to its own form. Form 0104CH allows you to donate your refund. Look for the total amount of donations to plummet since people won’t even look at an extra form like that. — The program was a victim of its own success. Other charities saw how much the original charities pulled in and lobbied to be on the form until there were so many the donation section was the longest part of the form.

Basically, calculating Colorado taxes works like this:

• Start with your Federal Income Tax
• Subtract stuff that the Feds made you add (or let you subtract) that Colorado does not do
  • If you add your state tax refund as income on your federal taxes, Colorado lets you subtract it
  • On the other hand, if you deducted your Colorado taxes on your fed income taxes, Colorado makes you add it back in.
  • Colorado municipal bond interest is tax-free for fed taxes, but you have to pay taxes on it for state taxes
  • Likewise, the interest on federal government bonds is taxable on your federal income taxes but not on your state income taxes, so you get to subtract that
  • If your income is over $500,000 (single) or $1,000,000 (jointly) you can’t have the qualified business income deduction, so you have to add it back in.
  • If you itemized, you can’t claim charitable deduction on federal income taxes, but you can claim the amount above $500 on your state taxes.
• Any contributions to a Colorado state 529 plan are deductible from your state income taxes up to $20,000 (single) or $30,000 (joint).
• Colorado has its own earned income tax credit (EITC) based on the federal earned income credit. You’ll need Form DR0104CR for that.
• There are also Colorado childcare credits. To qualify, you must have been allowed a childcare credit on your federal tax return. If you didn’t qualify there, you don’t qualify here. (There is a potential exception if you qualify for the low-income childcare credit (income limit of AGI $25,000 or less). Then there are income limits, and the credit phases out at $60,000. – You’ll need Form DR 0347 and IRS Form 2441 to claim this credit.
• There are credits if you qualify for electric vehicles or plug-in hybrid vehicles as well as an Innovative Truck Credit.
• There are a few other things that apply to a smaller group of people. Certain pension benefits, some land issues, and so on.
• Total it all up, and either send in money, or give them the bank info for refund.
• Or donate your refund using Form 0104CH
  • Nongame Conservation and Wildlife Restoration Cash Fund
  • Domestic Abuse Program Fund
  • Homeless Prevention Activities Fund
  • Western Slope Military Veterans Cemetery Fund
  • Pet Overpopulation Fund
  • Military Family Relief Fund
  • American Red Cross Colorado Disaster Fund
  • Habitat for Humanity of Colorado Fund
  • Special Olympics of Colorado Fund
  • Alzheimer’s Association Fund
  • Colorado Cancer Fund
  • Make-A-Wish Foundation of Colorado
  • Unwanted Horse Fund
  • Urban Peak House and Support Services for Youth Experiencing Homelessness Fund
  • Young Americans Center for Financial Education Fund
  • New – Donate to any Colorado Nonprofit Fund – you’ll need the Colorado Secretary of State Registration Number for the Registered Charitable Organization

Where to File Colorado Income Taxes Online

The best way to file Colorado Income Taxes is online directly with the State of Colorado. Just make sure the tax website is ready.

The Author

Brian is a freelance writer and web developer specializing in financial tools that can help readers in their quest for financial independence. He is a former Certified Financial Professional (CFP) and worked for several years as a financial advisor. All information here and on all of Finance Gourmet is for informational purposes only. Individual circumstances may vary. Consult with your financial advisor or tax professional for advice on your situation.