Withholding Taxes: Colorado
Federal law and guidance on this subject should be reviewed together with this section.
Authors: Stuart R. Buttrick, Susan W. Kline and Mary L. Will, Faegre Drinker Biddle & Reath LLP
- 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 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 provide certain information to employees on an annual basis. California employers must provide IRS Form W-2, Wage and Tax Statement, to current employees by January 31 of each year. In addition, certain employers are required to provide all employees with an Earned Income Tax Credit (EITC) notice informing employees of their eligibility for both the federal and California EITC. See Form W-2 Requirements; Earned Income 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.