Comprehensive Guide to Payroll Taxes in Colorado

As an employer in the United States, navigating the complex landscape of payroll taxes can be challenging. Each state has its own set of regulations and requirements, making it crucial for employers to understand and comply with each state's specific payroll tax laws to avoid potential penalties for non-compliance.

Business owners in Colorado are responsible for managing US FICA taxes, state taxes, and potentially local taxes. The state has a flat income tax rate of 3.5% for all taxpayers. Navigating payroll taxes in Colorado state requires a thorough understanding of both federal and state tax obligations.

This guide provides a detailed overview of the key components of Colorado's payroll and unemployment taxes, including state and local taxes: Unemployment Insurance (UI), Colorado Wage Withholding Tax, and Occupational Privilege Taxes (OPT).

Paying unemployment insurance (UI) in Colorado

Unemployment insurance (UI), also referred to as State Unemployment Insurance (SUI), is a critical component of the social safety net. UI has provided temporary financial assistance for individuals in the US who have found themselves unemployed through no fault of their own since it 1935, when it was established under the Social Security Act. UI requirements and rates vary from state to state. In Colorado, the program is managed by the Colorado Department of Labor and Employment in collaboration with the US Department of Labor.

As an employer in Colorado, you're responsible for paying UI for your employees if you pay at least $1500 in wages in a quarter or employ at least one person for part of a day for 20 weeks per year. Employers need to obtain an unemployment account number through MyBizColorado and also pay the federal unemployment tax (FUTA).

You can file reports, pay UI premiums, and check account status report wages in Colorado through the Colorado Department of Labor and Employment’s MyUI Employer+ online portal. Alternatively, you can file quarterly wage reports by File Transfer Protocol (FTP) and pay separately, or mail wage reports and payments to the address on the wage report form.

Quarterly payments are due on the last day of the month following the quarter end: April 30, July 31, October 31, and January 31. Late reports incur a $50 penalty per delinquent quarter, and late premiums incur a penalty and 1.5% interest per month.

To learn more about Colorado’s unemployment insurance program and its requirements, you can find comprehensive information on the Colorado Department of Labor and Employment’s website. Employers should familiarize themselves with the eligibility criteria and the process for filing unemployment claims to ensure their organization remains compliant.

Withholding personal income tax (PIT) from Colorado employees

Another crucial aspect of managing Colorado state payroll taxes is withholding personal income tax (PIT) from your employees’ wages as state income tax, similar to federal income tax withholding. PIT funds state programs and services such as healthcare, public safety, and education, and is administered by the Colorado Department of Revenue (DOR).

Colorado’s PIT rates are progressive, meaning that the percentage of income tax withheld increases as the employee’s earnings increase. As an employer, you must calculate the amount to withhold using the Colorado Withholding Worksheet for Employers (DR 1098) and must withhold tax from employees' paychecks based on IRS form W-4 or Colorado form DR 0004.

Employers must file returns and remit tax regularly, and provide W-2 forms to employees and the DOR by January 31 of the following year. There are multiple ways to return and remit:

• All employers are encouraged to file and remit the withheld personal income taxes using an electronic funds transfer (EFT)
• Alternatively, monthly and quarterly filers using e-checks and credit cards can use Revenue Online, The Colorado Department of Revenue's online portal
• Employers who are not required to pay via EFT can file and remit by mail with the DR 1094 form and check or money order

Filing frequency can be quarterly, monthly, or weekly, based on the annual account review by the DOR. Quarterly due dates are April 30, July 31, October 31, and January 31. The deadline for monthly payments is the 15th of the following month, while weekly payments depend on the pay period but generally fall on a Friday.

Local Payroll Taxes (Occupational Privilege Taxes - OPT)

The localities of Aurora, Denver, Glendale, Greenwood Village, and Sheridan where work is carried out levy flat-rate Occupational Privilege Taxes (OPT).

For example, Denver's OPT requires $5.75/month per employee, plus $4.00/month per taxable employee, owner, partner, and manager.

Additional information

• Audit Possibility: The Division of Unemployment Insurance conducts audits to ensure correct wage reporting and proper classification. The IRS conducts federal income tax audits.
• Nonprofit Organizations: Nonprofits are responsible for payroll taxes, including unemployment taxes if employing four or more workers. They must comply with Colorado wage withholding requirements.

Paying Colorado workers’ compensation

Workers’ compensation (WC) is a vital form of insurance that protects both employers and employees in the event of workplace injuries or illnesses. Employers must provide workers’ compensation coverage in Colorado, even if they have only one employee.

The workers’ compensation program is designed to cover medical expenses, lost wages, and rehabilitation costs for employees injured on the job. Employers can purchase workers’ compensation insurance from qualified commercial carriers in the state.

To ensure compliance with Colorado’s workers’ compensation regulations, employers must verify that their insurance coverage meets the state’s requirements. You can find valuable information on the Colorado Department of Labor and Employment’s website, which offers resources to help employers find qualified commercial carriers and understand their responsibilities.

Simplify US payroll tax compliance with Deel

While this introductory guide serves as a helpful starting point for payroll taxes in Colorado, there are other rules and regulations to remain compliant. At Deel, we help companies navigate these requirements with our convenient US payroll solution. 

Request a demo and see how we help Colorado employers streamline US payroll processes and ensure compliance with state regulations.