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).

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).

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

Residents 65 and over (or the surviving spouse of a senior who previously qualified) are 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 and veterans may also qualify to defer payment of their property taxes.

Full-year Colorado residents age 65 or older or disabled, or a surviving spouse age 58 or older, may qualify for the Property Tax/Rent/Heat Rebate and/or the Property Tax Deferral if their single income is less than $15,192 or married combined income is less than $20,518 (for 2019-2020; values are updated every year). Qualified applicants can receive a rebate of up to $600 of their property tax and $192 of their heating expenses paid during the year, either directly or as part of their rent payments. Seniors age 60 and older or those with a disability may apply for the property tax work-off program, which lets them work for the city or county government to 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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