Payroll tax in Colorado: What employers need to know [2023]

It doesn’t matter if you’re running a huge corporation or a small business; one undeniable fact is that you’re going to have to deal with taxes. Despite all the sweat equity, business owners in the state of Colorado don’t get off easy. You’ll have to deal with US FICA taxes (Medicare tax and Social Security tax), state taxes, and, depending on your location, local taxes. State taxes vary across the country, so it’s important to be on top of the tax regulations where your employees live. 

Colorado has a flat income tax, meaning the same tax rate is applied to all taxpayers, no matter how much they earn. The current income tax rate in Colorado is 3.5%. Even with a flat tax, filing payroll taxes can be a challenge. You have to get it right; otherwise, you risk fines, penalties, and the ire of your workers. Who needs that?

If you have a business with employees in Colorado, you’ll need to know the ins and outs of different payroll taxes, how much you’ll need to pay or withhold, how to file, and when. Let’s take a look. 

The 2 Colorado payroll taxes

There are two statewide payroll taxes that Colorado employers are responsible for: the Colorado State Unemployment Insurance (SUI) tax, which is administered by the Colorado Department of Labor and Employment (DLE), and the Colorado Wage Withholding Tax, which is administered by the Colorado Department of Revenue (DOR). Most employers are required to pay both (details below).

In addition, several municipalities have their own payroll taxes. These regional Occupational Privilege Taxes (OPT) are paid by both the employer and employee. They’re flat-rate taxes and are levied where work is carried out. As of 2024, the following localities have an OPT: Aurora, Denver, Glendale, Greenwood Village, and Sheridan.

Here’s a closer look at Colorado’s payroll taxes, how they’re calculated, and how much the maximum contributions are. 

Unemployment insurance tax (SUI)

Colorado’s unemployment insurance program goes back to 1935, when it was created under the Social Security Act. It’s run in partnership with the US Department of Labor and assists people who lose their jobs through no fault of their own (for example, layoffs). The Colorado Department of Labor and Employment determines the tax rates and taxable wages. 

Businesses that pay wages of at least $1500 in a calendar quarter during the prior or current calendar year or have employed at least one person for any part of a day in 20 weeks during the previous or current calendar year are required to pay unemployment insurance. Premiums are paid through a quarterly premium report and wage report process. Employers will need to acquire an unemployment account number through MyBizColorado. For new businesses, the SUI rate depends on the type of business. 

Colorado businesses are also required to pay federal unemployment tax under the Federal Unemployment Tax Act (FUTA).

Colorado wage withholding tax 

Colorado businesses that pay wages in the state are subject to the wage withholding tax. It’s collected alongside federal income tax withholding taxes. In Colorado, withholding tax funds state programs and services like healthcare, public safety, and education. Employers withhold this tax from their employees' paychecks.

The Colorado Department of Revenue oversees the reporting, collection, and enforcement of the withholding tax. Amounts are based on employees’ tax forms, either IRS form W-4 or Colorado form DR 0004.

Employers determine the amount they must withhold from their employees using the Colorado Withholding Worksheet for Employers (DR 1098). The worksheet requires information from the IRS Employee’s Withholding Certificate form W-4 or the Colorado Employee Withholding Certificate form DR 0004 to calculate the withholding amount. Employers are required to file returns and remit tax when required (see below) and prepare a Wage and Tax Statement form W-2 for each worker. Employers must provide copies of the W-2 to employees and the DOR by January 31 of the following year. 

Running payroll and understanding the complexities of tax laws in Colorado can be challenging. Keeping up with changing tax rates, complicated forms, detailed calculations, and employee exemptions is grueling. But Rippling’s payroll compliance software simplifies your tax burden. Rippling can automatically work out your taxes and file tax forms and payments for you—all while ensuring you’re compliant with the latest IRS, Colorado state, and local regulations. To delve even deeper, Rippling’s PEO can automate even more of the payroll process by registering your state tax accounts and keeping them current.

Payroll tax due dates in Colorado

Submitting your paperwork and payments on time will save you from headaches and costly penalties. Employers in Colorado must file wages and pay unemployment premiums quarterly. Due dates are the final day of the following month after the quarter ends. If the due date falls on a Saturday, Sunday, or legal holiday, the reports and payments are due on the next business day. These are the current due dates:

• First quarter (January-March): Due April 30
• Second quarter (April-June): Due July 31
• Third quarter (July-September): Due October 31
• Fourth quarter (October-December): Due January 31

Late reports incur a penalty of $50 for each quarter of delinquency. New employers face a fine of $10 for the first four quarters. Late premiums as of June 30 are assessed a penalty equal to the amount of delinquent premiums or 1% of the taxable payroll, whichever is less. You’ll also be charged interest at a rate of 1.5% per month or any portion thereof on late premiums and penalties.

For the Colorado Wage Withholding Tax, the process is different. Every employer required to withhold the Colorado state income tax (basically all employers that pay employee wages in Colorado) must have a Colorado wage withholding account. Registration can be done online at mybiz.colorado.gov or by filing a Colorado Sales Tax and Withholding Account Application (CR 0100AP) and emailing it to the address on the form, dropping it off at a Taxpayer Service Center, or mailing it to:

Colorado Department of Revenue
Taxpayer Service Center
PO Box 17087 
Denver, CO 80217-0087

Note that there are ID requirements. These are explained on the application form. 

Employers are required to file returns and pay taxes quarterly, monthly, or weekly. Your filing frequency is based on an annual account review by the DOR. The filing frequency is based on estimating what your business will expect to pay for all workers in one year.

Penalties are assessed on late payments. The fine is the greater of either $5 or 5% of the unpaid tax, plus 0.5% for each additional month the tax remains unpaid (maximum 12%). There is also a collection penalty equal to 15% of the outstanding amount if the employer fails to pay. Interest is added from the original due date until the tax is paid. The maximum interest rate for 2023 is 8%. Other penalties may apply. 

How to submit payroll taxes in Colorado

Now that you’re familiar with the different types of payroll taxes and when they’re due, it’s time to file them. There are several methods for Colorado employers, but the methods differ depending on the tax. 

Unemployment insurance tax

Online

With Colorado’s recently upgraded MyUI Employer+, businesses and third-party administrators (TPAs) can:

• File both wage and premium reports
• Pay premiums
• View account status
• Check balances
• Check rates

The MyUI Employer+ website has additional information and set-up instructions for employers and TPAs. 

FTP

You can file quarterly wage reports by FTP. To access this service and receive email notifications, visit the FTP website. Premiums will have to be paid separately, either by mail or electronically. 

File by mail

The Department of Labor and Employment accepts wage reports and payments by mail. The address is printed on the wage report form. 

Wage withholding tax

Electronic Funds Transfer (EFT)

The Colorado Department of Revenue encourages all employers to remit their wage withholding tax by EFT. Withholding payments made via EFT satisfies both payment and filing requirements (you don’t have to file a separate withholding return) and reduces the chance of errors and delays. 

Employers that are on a weekly payment schedule must remit by EFT. Employers who file quarterly or monthly can use the EFT system to reduce paperwork. Payments made by EFT must be made by the end of the day on the due date.

Revenue Online

Monthly and quarterly filers can submit reports and make payments with e-checks and credit cards (transaction fees apply) through the DOR’s Revenue Online portal. You’ll have to sign up and create a user ID to use this method. 

File by mail 

Employers who aren’t required to pay via EFT can file by mail. You’ll need to fill out a Colorado W-2 Wage Withholding Tax Return (DR 1094) and submit it along with payment (check or money order) to the following address:

Colorado Department of Revenue
Denver, CO
80261-0009

Checks must be made payable to the Colorado Department of Revenue, and returns and payments must be postmarked on or before the due date to be considered on time. 

Rippling’s full-service payroll software

You have many options to make your tax payments, but if you’re looking for something more efficient, Rippling’s payroll software is the answer. It’s so powerful that it virtually runs itself. Rippling streamlines your compliance tasks by handling all your federal, state, and local payroll tax filings on time and accurately. 

FAQs about Colorado payroll taxes

Are there local tax laws in Colorado?

Yes. Several municipalities have their own payroll taxes, or Occupational Privilege Taxes (OPTs). OPTs are flat-rate taxes that are levied where employment is carried out. Aurora, Denver, Glendale, Greenwood Village, and Sheridan all have OPTs. For example, Denver’s OPT requires employers to withhold $5.75 per month per employee. Employers must also pay an additional $4.00 monthly for each taxable employee, owner, partner, and manager. 

Can your tax returns be audited in Colorado?

Yes. The Division of Unemployment Insurance conducts random and scheduled audits of businesses in Colorado. Audits verify that the correct wages are reported for employees, workers are correctly classified, and the proper paperwork is filed. The IRS conducts federal income tax audits as well.

Are nonprofit organizations subject to payroll taxes in Colorado?

Yes. In most cases, nonprofits are responsible for Colorado’s payroll taxes. Regarding unemployment taxes, nonprofits exempt under section 501(c)(3) of the Internal Revenue Code that employ four or more workers are responsible for paying. Additionally, nonprofits that pay employers in Colorado are subject to Colorado wage withholding requirements.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.