Colorado Tax Guide 2026: Flat Income Tax, TABOR Refunds, and Local Taxes

Colorado is one of the few states where a constitutional amendment — the Taxpayer’s Bill of Rights (TABOR), passed in 1992 — directly limits how much tax revenue the state can keep. When state revenue grows faster than inflation plus population growth, the surplus must be refunded to all Colorado taxpayers. TABOR has also been behind temporary rate cuts (such as 4.25% for 2024), while the permanent decline in Colorado’s flat rate from 4.63% to the current 4.4% came through voter-approved Propositions 116 (2020) and 121 (2022).

This guide covers Colorado’s flat income tax structure, TABOR refunds, the Denver occupational privilege tax and other local income taxes, relatively low property taxes, and a state sales tax rate that is low on paper but climbs significantly once local additions are included.

Colorado Income Tax: Flat 4.4% and TABOR

The Flat Tax Rate

Colorado taxes all income at a flat 4.4% after the state standard deduction. Colorado uses federal adjusted gross income (AGI) as the starting point, then applies Colorado-specific additions and subtractions. The state standard deduction mirrors the federal standard deduction: $16,100 for single filers and $32,200 for married filing jointly in 2026. Colorado does not have its own personal exemption system beyond the federal-linked deduction.

TABOR and Colorado’s Rate Reductions

The Taxpayer’s Bill of Rights (TABOR), passed by Colorado voters in 1992, is one of the most consequential tax provisions in any US state. TABOR limits annual state revenue growth to the rate of inflation plus the percentage change in state population. When revenue exceeds this cap, the legislature must either refund the excess to taxpayers or ask voters for permission to keep it. Colorado’s rate history combines both routes. The permanent statutory rate fell from 4.63% to 4.55% under Proposition 116 (approved by voters in November 2020) and from 4.55% to 4.4% under Proposition 121 (approved in November 2022, effective for tax year 2022). Separately, TABOR surpluses have triggered temporary reductions: a temporary 4.5% rate in 2020–2021 and, under SB 24-228, a temporary 4.25% rate for 2024 only. TABOR refunds are distributed to all Colorado individual income tax filers, creating a meaningful rebate in strong economic years.

Denver and Local Occupational Privilege Taxes

Colorado does not have a broad local income tax system like Maryland, but several municipalities levy an Occupational Privilege Tax (OPT) on employees and employers:

• Denver: Employees earning $500+ per month pay $5.75/month; employers pay $4.00/month per qualifying employee
• Greenwood Village: $2/month per employee earning $250+/month
• Glendale: $5/month per employee
• Sheridan: $3/month per employee

For a full-year Denver employee earning over $6,000/year, the annual OPT cost is $69 — modest but worth noting for accurate payroll calculations.

Tax Burden Comparison at Different Income Levels

Note: Estimates based on approximate taxable income after standard deduction. Actual amounts vary based on deductions, filing status, and federal AGI adjustments.

Colorado Property Tax and Sales Tax

Property Tax: Relatively Low by National Standards

Colorado’s effective property tax rate averages approximately 0.50% of market value — placing it in the lower third nationally. For context, neighbor states like Nebraska (~1.44%) and Kansas (~1.21%) are significantly higher, while Wyoming (~0.57%) is comparable. Colorado property taxes are administered at the county level. The state legislature sets the residential assessment rate (the fraction of market value subject to tax), which has been adjusted multiple times over the years.

The Gallagher Amendment — a 1982 constitutional provision that required the residential share of Colorado’s property tax base to stay at roughly 45% — was repealed by voters in November 2020. This repeal gave the legislature more flexibility in setting assessment rates, but residential rates have remained moderate.

Sample Property Tax Estimates

• Denver metro ($550,000 home): approximately $2,750/year (effective ~0.50%)
• Boulder ($700,000 home): approximately $3,500/year
• Colorado Springs ($400,000 home): approximately $2,000/year
• Fort Collins ($450,000 home): approximately $2,250/year

Property Tax Exemptions

• Senior Homestead Exemption: Residents 65+ who have owned their primary residence for 10+ years qualify for an exemption equal to 50% of the first $200,000 of actual value (subject to state budget approval each year)
• Disabled Veterans: 50% of the first $200,000 of actual value exempt for qualifying disabled veterans

Sales Tax: Low State Rate, High Local Additions

Colorado’s state sales tax rate of 2.9% is one of the lowest in the nation — but Colorado allows extensive local sales tax additions, resulting in some of the most complex sales tax environments in the country. Each city, county, and special district can levy its own sales tax. Combined rates:

• Denver: 2.9% state + 6.25% local (5.15% Denver plus 1.1% RTD/district) = 9.15% (some categories, such as prepared food, are taxed at different rates)
• Other cities (Boulder, Colorado Springs, Fort Collins, Aurora): combined rates differ by city and county and change often — check the Colorado Department of Revenue rate lookup before relying on a figure

Colorado has no estate tax and no inheritance tax at the state level.

Retirement Income, Moving to Colorado, and Tax Planning

Retirement Income Exemptions

Colorado taxes retirement income — but offers age-based exemptions that make it increasingly retirement-friendly as you age. The exemptions apply to Social Security benefits, pension income, IRA distributions, and 401(k)/403(b) distributions:

• Under age 55: No exemption — all retirement income taxed at 4.4%
• Ages 55–64: Up to $20,000 per year of qualifying retirement income exempt (Social Security fully exempt if AGI is $75,000 single / $95,000 joint or less)
• Age 65 and older: All federally taxed Social Security exempt, plus up to $24,000 per year of other qualifying retirement income

For a couple both aged 65+, this means up to $48,000/year of pension, IRA, and 401(k) income is exempt from Colorado state income tax, in addition to all taxable Social Security — a meaningful benefit for moderate-income retirees. Note that the exemption applies per person, not per household.

Military Retirement Pay

Retired servicemembers under age 55 can subtract up to $15,000 of military retirement pay (tax years 2022 through 2028); those 55 and older use the regular pension and annuity subtraction.

Comparison: Colorado vs. Neighboring States for Retirees

TABOR Refunds: What to Expect

In recent years, Colorado’s strong economy has generated TABOR surplus refunds. Eligible Colorado residents have received TABOR refunds in recent years, including a temporary income tax rate reduction to 4.25% for tax year 2024. The amount varies year to year depending on state revenue performance. Taxpayers must file a Colorado income tax return to receive TABOR refunds — even those who owe $0 in state tax. TABOR refunds are not guaranteed every year; they depend on whether revenue exceeds the constitutional cap.