Colorado’s 2025 tax rate stays 4.40%; no temporary reduction this year

Colorado’s 4.40% state income tax rate will stay in place for the 2025 tax year, after the state’s new refund-and-rate system did not produce a temporary cut. The trigger set under SB 24‑228 was missed because the state’s net excess revenue for 2025 was about $293.3 million, below the $300 million level needed to reduce the rate, according to the source material.

What changed — and what didn’t

The immediate outcome for 2025 is simple: employers will continue withholding at 4.40% unless Colorado announces a different rate for a later year. That rate applies to income earned in 2025 and reported on 2026 returns.

What did change is structural. Colorado now has a TABOR‑linked rate reduction mechanism (created by SB 24‑228, signed May 14, 2024) that:

• Funds certain homestead- and senior-property-related TABOR refunds first.
• Then measures “remaining excess revenue.”
• If that remaining excess exceeds $300 million, the income tax rate can be temporarily reduced according to a schedule written into the statute.

The mechanism is set to run annually through 2034, so the headline rate can still shift year to year depending on surplus size.

How the rate-reduction schedule works

The schedule is designed for small, incremental changes rather than large swings. Per the source material:

• $300M–$500M remaining excess → 0.04 percentage-point reduction
• Larger surpluses produce larger step-downs, up to 0.15 percentage points when remaining excess is over $1.5B
• In very high-surplus years, the statute allows reducing the rate further to refund all remaining excess revenue
• Any reduction applies only for that tax year; if the trigger isn’t met the next year, the rate returns to 4.40%

Who the flat rate covers

For 2025, the 4.40% state income tax rate applies broadly to:

• Individuals
• Estates
• Trusts
• Corporations

Taxation rules by residency:

• Residents: taxed on income from worldwide sources
• Nonresidents: taxed on Colorado-source income only
• Part-year residents: taxed on income while living in Colorado plus Colorado-source income earned while living elsewhere (pro-rated by months of residency)

Practical impact on immigrants and newcomers

Applying the residency and withholding rules often shows up quickly in daily life for newcomers:

• The engineer arriving midyear on a work visa
• The nurse transferring from another state
• The refugee starting work soon after resettlement
• The international student taking a paid internship

These situations frequently create two-state or part-year filing scenarios. Mistakes in withholding can produce real costs—especially for households already paying rent deposits, car insurance, and federal immigration filing fees.

Key points for immigrant households:

• A small under-withholding can lead to a tax bill at filing time.
• Over-withholding effectively gives the state an interest-free loan that could have been used for groceries, transit, or legal help.
• State tax predictability is a common “hidden cost” after a move, per analysis by VisaVerge.com.

Credits, deductions, and targeted relief

Colorado’s tax system interacts with federal rules and provides targeted relief that may matter to immigrant families:

• Colorado’s tax base starts with federal taxable income — there is no separate state standard deduction. Federal deductions (standard or itemized) therefore shape Colorado taxable income.
• Age-based retirement income deductions:
  • 65 and older: deduct up to $24,000 of eligible pension and annuity income
  • Ages 55–64: deduct up to $20,000
  • Retirement income otherwise taxed at 4.40%
• State credits expanded for working families:
  • Colorado Earned Income Tax Credit (EITC): worth up to 50% of the federal EITC for 2025
  • Refundable state child tax credit: up to $1,200 per child for children under age 6
  • Income limits roughly $77,000 (single filers) and $87,000 (joint filers)

These credits can be especially important for mixed-status households and families rebuilding wages after a move.

Local “head taxes” and other local add-ons

Colorado does not impose city income taxes at the state level, but several home-rule cities impose local occupational privilege taxes (often called “head taxes”) on people who work there. The source material lists cities that include:

• Denver
• Aurora
• Glendale
• Greenwood Village
• Sheridan

These are typically small, fixed monthly amounts, separate from the 4.40% state income tax rate, and they can apply even if a worker lives outside the city. For commuters, that extra line on a pay stub can be confusing without clear explanation.

Timing, withholding, and filing deadlines

Important dates and timing notes from the source material:

• Effective start: January 1, 2025 — the 4.40% applies to income earned on/after this date.
• Revenue and TABOR surplus evaluations generally occur around September–October 2025 to determine any change for 2026.
• April 15, 2026 — due date for Colorado 2025 state income tax returns for most taxpayers (matches federal deadline).
  • Automatic six-month filing extension is available.
  • At least 90% of tax must be paid by April 15 to avoid penalties and interest.

Practical consequences:

• Employers must withhold at 4.40% for 2025 wages unless/until a different rate is announced.
• Self-employed workers and investors should calculate 2025 estimated taxes using 4.40% unless the state announces a change.
• Employers with large immigrant workforces (construction, hospitality, health care, meatpacking, tech) may face payroll confusion if rates or guidance change late.

Payment flexibility and collections

The source material notes options for taxpayers who cannot pay in full:

• Installment payment plans (subject to Department of Revenue approval)
• Offer in Compromise program (subject to Department of Revenue review)

These options are relevant for low‑savings households and new arrivals who face cash-flow pressures.

Why 2025 reverted from 2024

• Tax year 2024 had a temporary 4.25% rate.
• That temporary reduction did not extend into 2025 because the remaining excess revenue did not meet the $300 million trigger.
• As a result, 2025 returns to the baseline 4.40% unless a future year meets the statutory threshold.

Broader policy context

The broader debate over Colorado’s flat rate continues:

• Supporters praise the flat rate for simplicity.
• Critics argue an equal rate can weigh more heavily on low-income households.
• SB 24‑228 aims to keep the flat system while sharing surplus years via the TABOR‑linked mechanism, but 2025 shows the limits of that promise in leaner surplus years.

With net excess revenue at about $293.3 million, just below the line, the outcome is a year of steadiness: the 4.40% state income tax rate applies across income types, supplemented by credits, deductions, and local add-ons that ultimately shape what immigrant families pay when they file in 2026.

Where to get official guidance

For official filing rules, withholding updates, and individual tax instructions, see the Colorado Department of Revenue’s individual income tax page:
https://tax.colorado.gov/individual-income-tax

The state typically issues updated employer guidance and forms as needed; timing can vary and updates may come later than expected.