Colorado Tax Guide 2025

Navigating the complexities of state taxes can be daunting, but understanding Colorado's tax landscape is essential for residents and newcomers alike.

In this guide, we'll explore key components of The Centennial State's tax system, from income and sales taxes to property taxes and retirement benefits.

Colorado taxes: Overview

Colorado has a flat income tax, which keeps things pretty straightforward for most people. And thanks to the Taxpayer’s Bill of Rights (TABOR), residents can sometimes get tax refunds when the state brings in more money than expected.

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Sales tax in Colorado is a different story. It starts low at the state level, but local rates vary, so what you pay depends on where you shop.

Colorado also offers some helpful tax breaks, especially for older residents and families, including relief on property taxes and special rules around Social Security.

• For instance, families may benefit from tax-exempt essentials like groceries and diapers, and a new Colorado tax credit is designed to help those with children under 17.
• Older Coloradans may qualify for a homestead property tax exemption. Colorado's Promise Tax Credit also offers students two years of free college.

Those and other elements contribute to a tax environment that balances fiscal needs with resident benefits.

Here's more to know about Colorado state taxes, whether you're a current or prospective resident.

[Data for this state tax guide was gathered from a number of sources including the Census Bureau, the state’s government website, the Sales Tax Handbook, and the Tax Foundation. Property taxes are cited as a rate percentage rather than the assessed value.]

Colorado income tax rate

Colorado's income tax rate is 4.4%. However, as mentioned, the state also has a unique TABOR program.

TABOR, or the Taxpayer's Bill of Rights, is a 1992 Colorado constitutional amendment that limits government revenue growth to inflation plus population increases. It requires voter approval for tax hikes; any revenue collected above the limit must be refunded to taxpayers, so it often generates refunds.

Note: With TABOR, residents must actively opt-in to receive TABOR refunds by checking a box on their state tax return. The deadline for filing state taxes and claiming the refund is April 15, 2025, or October 15, 2025, if filing for an extension.

Related: Don't Miss Your Colorado TABOR Refund When Filing Taxes.

• Some cities and localities in Colorado impose a monthly payroll tax.
• Social Security Benefits: Social Security income is deductible for taxpayers aged 65 and over. (More on that below.)
• For the 2025 tax year, taxpayers under age 55 can exclude up to $15,000 of income from a military retirement plan.
• Railroad Retirement benefits are exempt from state tax in Colorado.

Colorado has also changed its Social Security tax policy. Colorado already allows those 65 and older to subtract their Social Security benefits from state taxable income if their adjusted gross income (AGI) is below certain thresholds.

However, as of 2025, the state is expanding this exemption to those aged 55-64 with similar AGI limits. (For individual filers, the AGI limit is $75,000, while couples filing jointly can earn up to $95,000 and still qualify for the full deduction.)

For more information, see Two States Reform Social Security Policy in 2025.

Colorado retirement taxes

Although Colorado taxes Social Security benefits, some retirees can exclude all their Social Security benefits from their taxable income. Colorado also allows a retirement income deduction of up to $20,000 for taxpayers 55 and older. Retirees 65 and older may deduct up to $24,000.

• Income Tax on Taxable Income: Flat rate of 4.25% (for the 2024 tax year).
  • Social Security: Partially taxable for some retirees (fully deductible for taxpayers 65 and older)
  • Pensions: Partially taxable
  • 401(k) and IRA Distributions: Taxable

Colorado sales tax

Colorado's state sales tax is 2.9%. Localities can add as much as 8.3%, and the average combined Colorado sales tax rate is 7.86%, according to the Tax Foundation.

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

What is the property tax rate in Colorado?

In Colorado, the average property tax rate as a percentage of assessed home value is 0.5%, according to the Tax Foundation.

Colorado Property Tax Breaks for Retirees

Colorado Property Tax Exemption for Adults 65 and Older: Colorado offers a property tax exemption for older adults aged 65 or older. Specific requirements must be met, but if you qualify, 50% of the first $200,000 of the value of a primary residence is exempt from property tax.

An applicant or married couple can apply for the exemption on only one property, which must be their primary residence. Married couples and individuals who apply for the exemption on multiple properties cannot claim the property tax exemption.

The qualifying resident must also have owned and lived in the home for at least ten years.

Colorado gas tax

Gasoline: $0.22 per gallon

Diesel: $0.21 per gallon.

Source: The Sales Tax Handbook

Colorado taxes on alcohol and tobacco 

Source: The Sales Tax Handbook

Source: The Sales Tax Handbook

Marijuana: For retail purchases of marijuana in Colorado, a 15% state marijuana sales tax applies, and a 15% excise tax, plus state and local sales taxes.

Colorado estate and inheritance tax

Colorado doesn't have an estate or inheritance tax.

More on Colorado Taxes

• Don't Miss Your Colorado TABOR Refund When Filing Taxes
• New Colorado Tax Credit: What’s the Scoop?
• Colorado’s Property Tax Reform Could Save You Hundreds
• New Tax Credit Offers Two Years Free Tuition for Some Coloradans