So, you're trying to figure out the income tax rate in colorado without getting a headache. Honestly, it’s a bit of a moving target lately. Most people think they can just Google a single number and be done with it, but Colorado has this unique, slightly chaotic way of handling taxes thanks to something called TABOR.
Right now, for the 2026 tax season (which is when you're filing for the 2025 calendar year), the flat rate is 4.25%.
Wait. Didn't it used to be higher? Yeah, it did. It was 4.40% for a while, and before that, 4.55%. Colorado is one of the few states that actually moves the needle downward based on how much extra cash the state government has sitting in its pockets. But don't get too comfortable. There’s a lot of noise at the State Capitol right now about changing this whole "everyone pays the same" vibe.
The Flat Rate Reality: How the Income Tax Rate in Colorado Works
Colorado is a "flat tax" state. Basically, whether you’re a barista in Boulder or a tech CEO in Cherry Creek, the state takes the same percentage of your taxable income. No brackets. No sliding scales. Just one flat number.
For 2025 and 2026, that number is 4.25%.
But here’s where it gets kinda weird. That rate isn't necessarily permanent. Under the Taxpayer’s Bill of Rights (TABOR), if the state collects too much revenue—meaning they hit a specific cap—they have to give it back. Sometimes they do that through checks in the mail, and sometimes they do it by temporarily (or permanently) lowering the income tax rate.
What You Need to Know About Your 2026 Filing
When you sit down to do your taxes this year, you’re looking at your 2025 earnings.
- The Rate: 4.25%.
- The Base: It starts with your Federal Taxable Income.
- Add-backs: If you make over $300,000, Colorado has a specific rule where you might have to "add back" some of your federal deductions, effectively making you pay a bit more.
It's a simple system on the surface. But simple doesn't always mean cheap, especially since Colorado doesn't have its own standard deduction. It just piggybacks off whatever the federal government says you owe.
Why the Rate Keeps Shifting
You've probably noticed the rate has been bouncing around. In 2020, voters passed Proposition 116, which dropped the rate from 4.63% to 4.55%. Then, in 2022, Proposition 121 slashed it again to 4.40%.
Why is it 4.25% now?
Well, the state legislature triggered a temporary reduction because the economy was doing too well. Seriously. The state had so much extra revenue that the law forced a drop to 4.25% for the 2024 and 2025 tax years.
But there's a catch.
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Governor Jared Polis and state economists recently warned that the "surplus" is drying up. For the first time in years, the state might actually fall below the TABOR cap in 2026. If that happens, those automatic rate cuts could disappear, and we might see the rate crawl back up to the "permanent" 4.40% level in the near future.
The 2026 Battle: Flat Tax vs. Graduated Tax
If you think the income tax rate in colorado is settled, think again. As of early 2026, there is a massive push to scrap the flat tax entirely.
A coalition of advocacy groups is working to put a measure on the ballot that would create a graduated income tax. They want to lower the rate to 4.2% for the first $100,000 you earn, but then jack it up significantly for the wealthy. We’re talking rates as high as 9.5% for people clearing over a million dollars a year.
It’s a huge debate. Supporters say the current system is "regressive" because a 4.25% hit hurts a family making $50k way more than a millionaire. Opponents argue that the flat tax is what makes Colorado's business climate competitive.
Hidden "Taxes" and Local Costs
Don't forget the Occupational Privilege Tax. Some people call it the "Head Tax." If you work in Denver, Aurora, or Glendale, you might see a flat fee taken out of your paycheck every month—usually around $5 to $10—just for the privilege of working in that city. It’s not technically an income tax rate, but it feels like one when you're looking at your stub.
Also, Social Security? Colorado used to be pretty harsh on taxing it. Now, if you’re 65 or older, you can generally subtract all your Social Security income from your state taxable income. If you're 55 to 64, you get a smaller break.
Actionable Steps for Tax Season
First, check your withholdings. If you haven't adjusted them since the rate dropped to 4.25%, you might be overpaying the state every month. That’s basically giving the government an interest-free loan.
Second, keep an eye on the 2026 ballot. The results of the upcoming election could fundamentally change how much you owe starting in 2027. If the graduated tax passes, your tax planning needs to change immediately.
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Lastly, look into the new Family Affordability Tax Credit. If you have kids under six, the state might actually owe you money, regardless of the flat rate. This credit was expanded recently and can be a huge win for middle-class families trying to survive the Colorado housing market.
The bottom line: 4.25% is the number for now. Use it to calculate your estimated payments, but keep your ears open, because in Colorado, the tax code is never truly "set in stone."