Colorado Payroll Taxes and Withholding Guide (2026)

What Makes Colorado Payroll Different

Federal payroll tax is the same in every state. What changes from one state to the next is the second layer: state income tax withholding, employer unemployment taxes, paid-leave premiums, and any local wage taxes. Colorado's second layer has three distinctive pieces: a flat 4.40% income tax withheld through an unusual allowance mechanism, a statewide paid-leave premium called FAMLI, and a handful of city head taxes.

The feature that surprises most Colorado workers is how the flat tax is withheld. Rather than applying 4.40% to your whole check, the DR 1098 worksheet first subtracts an annual withholding allowance, and that allowance is deliberately small unless you file the optional DR 0004. The result is that most Colorado workers over-withhold and get a refund, and the fix, the DR 0004, is one most people have never heard of. The federal baseline behind all of this is explained in the how payroll taxes work guide.

Employee Withholding Overview in Colorado

A Colorado employee sees federal taxes, a flat 4.40% state tax, and the FAMLI premium. There is no employee unemployment line and no state disability line; a few cities add a flat OPT.

The federal lines work identically to any other state. For Social Security, the 2026 wage base is $184,500, after which Social Security stops for the year. Medicare has no cap. What is unique to Colorado is the flat state tax paired with an annual withholding allowance, the FAMLI paid-leave premium, and a small set of city OPTs; there is no employee unemployment contribution at all.

How Is Colorado State Income Tax Withheld?

Colorado uses the DR 1098 Colorado Withholding Worksheet for Employers. The employer annualizes wages, subtracts your annual withholding allowance, multiplies the remainder by 4.40%, then divides across pay periods and adds any additional Colorado amount you requested on the DR 0004. The rate is flat, so there is no bracket table.

The flat rate has held at 4.40% for both 2025 and 2026. The 2024 rate was temporarily cut to 4.25% under a TABOR surplus mechanism, but that was a one-year adjustment; the standard rate is 4.40%. The federal Form W-4 sets federal withholding, covered in the W-4 withholding explained guide, and it also determines which default Colorado allowance the employer uses, while Form DR 0004 lets you override that allowance.

The DR 0004 Withholding Allowance

This is the layer that defines Colorado withholding. Form DR 0004, the Colorado Employee Withholding Certificate, is optional, and its absence is exactly why so many Colorado workers over-withhold. When there is no DR 0004 on file, the DR 1098 default allowance is small:

Because the default ($5,000 or $10,000) is far smaller than the DR 0004 Table 1 allowance, an employee with no DR 0004 has 4.40% applied to nearly all of their wages, over-withholds, and receives a refund. Filing a DR 0004 with the Table 1 amount for your filing status and number of jobs raises the allowance, lowers withholding, and increases take-home pay. Employees who expect the Colorado child tax credit or other credits can go further with the DR 0004 Worksheet 1, which can reduce withholding to near zero for lower earners. The Colorado paycheck calculator lets you compare the default against a DR 0004 allowance directly.

Colorado FAMLI Paid-Leave Premium

Colorado Family and Medical Leave Insurance (FAMLI) is a statewide paid-leave program funded by a premium split between employee and employer. Employee payroll deductions began in 2023, and it shows up as its own line on the stub.

The employee always pays the employee share. Employers with 10 or more employees pay the matching half; employers with fewer than 10 are not required to pay the employer half, but they still withhold the employee premium. The premium is collected on wages up to the Social Security wage cap, so for 2026 the maximum annual FAMLI employee premium is 0.44% of $184,500, about $812. State law caps the total FAMLI premium at 1.2%, so it cannot rise above that. See how the premium changes take-home pay with the Colorado paycheck calculator.

Local Occupational Privilege Tax (OPT)

Colorado has no percentage-based local income tax, but five cities historically charged a flat monthly Occupational Privilege Tax, a fixed-dollar head tax on people who work in the city and earn above a monthly threshold. It is withheld as a set dollar amount, not a percentage of wages.

The employer typically also pays a matching OPT amount. Because the tax is a flat monthly dollar figure, it does not scale with salary and has almost no impact on a high earner's effective rate. The important thing for a worker is to recognize the OPT line as a legitimate city tax rather than a payroll error. Aurora's repeal on January 1, 2025 means Aurora workers no longer see an OPT line.

Colorado Has No Income Tax Reciprocity

Unlike states such as Illinois or Wisconsin, Colorado has no reciprocal income tax agreements with any other state. If you live in another state but work in Colorado, your Colorado wages are subject to Colorado withholding.

In that situation you generally file a Colorado nonresident return (Form 104 with Form 104PN) to report the Colorado-source wages, and then claim a credit for taxes paid to Colorado on your home-state resident return, so the same income is not fully taxed twice. There is no Colorado equivalent of the reciprocity forms used in bordering-state agreements, so a cross-border commuter cannot simply stop Colorado withholding. Colorado also has no employee-paid disability or unemployment contribution, so the only mandatory state deductions are the 4.40% income tax and the FAMLI premium.

Employer Payroll Obligations in Colorado

Colorado employers carry the federal employer taxes plus State Unemployment Insurance through the Department of Labor and Employment (CDLE) and the employer half of FAMLI. The federal side, covered in the employer payroll tax obligations guide, includes the matching 6.2% Social Security and 1.45% Medicare plus Federal Unemployment Tax (FUTA).

The Colorado unemployment taxable wage base rose to $30,600 per employee for 2026 (from $27,200 in 2025), so employer unemployment tax stops once an employee's year-to-date wages pass that base. Unemployment premiums are experience-rated by CDLE and are never deducted from employee pay. Employers with 10 or more employees also remit the 0.44% FAMLI employer share on top of withholding the employee half. Model the combined cost-to-hire with the employer payroll tax calculator.

Colorado Supplemental Wage Withholding

Supplemental wages are payments outside regular salary: bonuses, commissions, overtime, sales awards, and back pay. Colorado handles them simply.

• Flat rate: Colorado withholds the same flat 4.40% on supplemental wages, the same rate as regular wages.
• Aggregate option: an employer may instead add the supplemental payment to regular wages and run the DR 1098 formula on the combined amount.
• FAMLI: the 0.44% employee premium (2026) still applies to supplemental wages up to the wage cap.
• Local wage tax: none as a percentage; the flat monthly OPT is unaffected by a one-time bonus.

Federal income tax withholding on supplemental wages is a separate calculation set by the IRS (usually a flat 22% below $1 million), and Social Security and Medicare still apply under their own rules. For the federal supplemental math, use the Bonus Tax Calculator.

Colorado Filing and Payment Frequency

Colorado employers deposit withheld state income tax using Form DR 1094 on a schedule (quarterly, monthly, or weekly) based on the amount withheld, and reconcile annually with Form DR 1093 and the W-2 filing. Most filing and payment is done through Revenue Online at the Department of Revenue. FAMLI premiums are reported and paid separately through the FAMLI Division's My FAMLI+ Employer portal on a quarterly basis.

Unemployment premiums are reported and paid quarterly through CDLE, separately from income tax withholding. New employees must be reported to the Colorado state directory of new hires within 20 days of the hire date. The federal deposit schedule is covered separately in the payroll tax deadlines guide.

How Take-Home Pay Works in Colorado

The calculation sequence runs from gross pay down to net pay. Because Colorado income tax begins with federal wages, the same pre-tax deductions that reduce federal wages also reduce the Colorado state base.

1. Start with gross wages for the pay period.
2. Subtract federal pre-tax deductions (401(k), Section 125 health premiums) to find taxable wages for federal and Colorado state tax.
3. Apply federal income tax withholding using the Form W-4 and IRS Publication 15-T.
4. Annualize wages, subtract the DR 0004 allowance (or the $5,000 / $10,000 default), apply 4.40%, and divide across pay periods.
5. Subtract Social Security (6.2%) and Medicare (1.45%) on FICA wages, the FAMLI premium (0.44% for 2026), and any local OPT. The remainder is net pay; there is no employee unemployment line.

To see exact figures for a specific salary, DR 0004 allowance, and pay frequency, use the Colorado paycheck calculator or the general take-home pay calculator for a full pre-tax benefits stack.

Colorado Payroll Quick Facts (2026)

Frequently Asked Questions