State-by-State Guide to Taxes on Retirees
Tool | December 2020

Colorado State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.

Colorado

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The Bottom Line
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Most Tax-Friendly

If you'd like to retire early in the mountains (or at their feet) the Centennial State is a promising place to do it. In Colorado, taxpayers 55 and older get a generous retirement-income exclusion from state taxes, and it gets better when they reach 65. And when it comes to property taxes, not only does Colorado have one of the lowest median tax rates in the country, but seniors may qualify for an exemption of up to 50% of the first $200,000 of property value.

The one downside for retirees is that Colorado's sales taxes (which have a local component) are on the high side and can exceed 11% in some parts of the state. But, if you don't plan of shopping too much in retirement, then you shouldn't be hit too hard with the state's sales tax.

Income Tax Range

Colorado has a flat income tax rate of 4.55% (the approval of Proposition 116, which appeared on the November 2020 ballot, reduced the rate from 4.63% to 4.55%). The state also limits how much its revenue can grow from year-to-year by lowering the tax rate if revenue growth is too high. For example, in 2019, this resulted in a rate reduction to 4.5%.

Denver and a few other cities in Colorado also impose a monthly payroll tax.

Taxation of Social Security Benefits

Up to $24,000 of Social Security benefits taxed by the federal government, along with other retirement income, can be excluded for Colorado income tax purposes ($20,000 for taxpayers 55 to 64 years old).

Beginning in 2022, the $24,000 cap is removed for federally taxable Social Security benefits, which effectively makes all federally taxed Social Security income deductible for taxpayers 65 and over.

Tax Breaks for Other Retirement Income

Taxpayers age 65 and older can exclude up to $24,000 of income from private, government and military retirement plans (including from IRAs), along with Social Security benefits taxed at the federal level ($20,000 for taxpayers 55 to 64 years old). Beginning in 2022, if the total Social Security benefits that were included in federal taxable income exceed the $24,000 cap, then the cap is increased to equal the Social Security benefits taxed at the federal level.

For 2020, taxpayers under age 55 can exclude up to $7,500 of income from a military retirement plan. This exemption increases to $10,000 for 2021, and to $15,000 for 2022 and 2023.

Railroad Retirement benefits are also exempt.

Sales Tax

2.9% state levy. Localities can add as much as 8.3%, and the average combined rate is 7.72%, according to the Tax Foundation.

Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Taxable
Prescription Drugs: Exempt

Real Property Taxes

In Colorado, the median property tax rate is $494 per $100,000 of assessed home value.

Residents 65 and over may be eligible to exempt 50% of the first $200,000 of actual value of a primary residence from property taxes. Applicants must have owned and lived in the home for at least 10 years.

Senior citizens age 65 and older may also qualify for a deferral of their property tax payments. The deferred taxes must be paid when the property is sold or otherwise transferred, but they can also be paid earlier without affecting eligibility for a future deferral.

Full-year Colorado residents age 65 or older may qualify for the Property Tax/Rent/Heat Rebate if they are single with an income less than $15,591 or married with a combined income less than $21,057 for 2020 (income limits are updated every year).

In addition, seniors age 60 and older may apply for the property tax work-off program if there is such a program where they live. Under these programs, eligible residents can work for the city or county government, which will then pay off a portion of their property taxes.

Annual Car Taxes and Fees

An annual vehicle ownership tax based on the car's sticker price (MSRP) and age is imposed. Rates are set at the county level.

Estate and Inheritance Taxes

No estate or inheritance tax.

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