Does Colorado Tax Social Security and Retirement Income?

Social Security is fully subtracted from 65, and at 55 to 64 under an income limit

Colorado’s income tax can still reach Social Security, because its return starts from federal taxable income, which includes the taxable part of benefits. For tax years 2022 and later, a taxpayer who is 65 or older at the end of the year may subtract the entire amount of Social Security included in federal taxable income. The subtraction is the amount on line 6b of the federal return, not the gross benefit. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

For tax years beginning on or after January 1, 2025, taxpayers aged 55 to 64 at year end may also subtract all of their federally taxable Social Security if adjusted gross income does not exceed $75,000 for a single filer or $95,000 for a joint return. Above those thresholds the subtraction for a person of that age is capped at $20,000. Someone under 55 has no subtraction unless the benefits are received as a death benefit, in which case the cap is $20,000. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

On a joint return the taxable benefits are divided between the spouses in proportion to each one’s gross benefits, using a worksheet in the Department of Revenue’s publication, and each spouse’s age decides the treatment of their share. In our second example household $46,750 of benefits is taxable federally; the spouse who receives $35,000 of the $55,000 total is assigned $29,750 and the other $17,000. Both are over 65, so both shares are subtracted in full. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

The federal government is a separate matter. Up to 85% of a benefit can be taxed on a federal return once other income passes fixed thresholds, wherever you live. Our taxable Social Security calculator shows how much of yours is counted.

Pensions are taxable after a $20,000 or $24,000 per-person subtraction

Pension and annuity income included in federal taxable income can be subtracted up to $20,000 a year by a taxpayer aged 55 to 64 and up to $24,000 by a taxpayer 65 or older. Qualifying income is periodic payments arising from an employer-employee relationship, from service in the uniformed services or from deductible contributions to a retirement plan, so private pensions, government pensions and military retired pay all fall under the same limit. Fully matured privately purchased annuities qualify too. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

The limit is not a separate allowance on top of Social Security. Any subtraction claimed for Social Security reduces the subtraction available for other pension and annuity income. A person of 68 with $25,500 of federally taxable benefits subtracts all $25,500 and has nothing left for a pension; a person with $17,000 of taxable benefits can subtract a further $7,000 of pension or IRA income. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

Each spouse on a joint return determines eligibility and the amount separately, based on their own age and their own qualifying income. If one spouse’s income exceeds the limit, the excess cannot be subtracted by the other spouse, even when the other spouse has unused room. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

Military retirees under 55 have a separate subtraction of up to $15,000 of military retirement benefits for tax years 2022 through 2028. From 55 they use the regular pension and annuity subtraction. Railroad retirement benefits are exempt under federal law, are subtracted in full at any age and do not count against the $20,000 or $24,000. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

IRA withdrawals share the pension subtraction; conversions are taxed at 4.4%

Distributions from traditional, SEP and SIMPLE IRAs count as pension and annuity income in the amount shown as taxable on line 4b of the federal return. They share the $20,000 or $24,000 limit with pensions and Social Security. Distributions from an IRA or a self-employed retirement plan that are premature for federal purposes, meaning subject to the federal early-distribution penalty, do not qualify. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

A Roth conversion increases federal taxable income, and Colorado taxable income begins with that figure. The state has no subtraction aimed at conversions, and when the pension and annuity limit is already consumed by Social Security and regular withdrawals, as it is in all three of our example households, each $10,000 converted costs $440 of Colorado tax. Qualified Roth withdrawals are not in federal taxable income and never reach the Colorado return. (Colorado Department of Revenue: Individual Income Tax Guide)

To size a conversion against federal brackets and Medicare surcharges, see the Roth conversion calculator; for required withdrawals, the RMD calculator.

Interest, dividends and capital gains are taxed at the flat rate

Interest, dividends and capital gains are part of federal taxable income and are taxed at 4.4% with no lower rate for long-term gains or qualified dividends. The Department of Revenue’s guide lists a capital gain subtraction, but only for certain qualifying gains that are covered in a separate publication. (Colorado Department of Revenue: Individual Income Tax Guide)

Interest on obligations of the United States and its possessions is subtracted to the extent it is in federal taxable income. Interest on bonds of other states and their local governments, exempt on the federal return, must be added back; interest from the State of Colorado and its political subdivisions is not. (Colorado Department of Revenue: Individual Income Tax Guide)

Colorado taxes income at one flat rate, 4.4% for tax year 2025, with no brackets. The rate was temporarily 4.25% for 2024 under a TABOR refund mechanism. Colorado taxable income is federal taxable income adjusted by Colorado additions and subtractions, so there is no Colorado standard deduction or personal exemption: the federal deductions have already been taken by the time the Colorado return begins. (Colorado Department of Revenue: Individual Income Tax Guide)

For 2026 the rate remains 4.4%. The State Controller certified in September 2026 that state revenue for the fiscal year ended June 30, 2026 fell short of the TABOR cap by $175.9 million, so the state has no refund obligation and no refunds, including a temporary rate reduction or the sales tax refund claimed on the income tax return, will be paid for tax year 2026. (Colorado Legislative Council Staff, Economic and Revenue Forecast, September 2026 (TABOR outlook))

The federal standard deduction for 2026 is $16,100 for single filers and $32,200 for married couples filing jointly, plus $2,050 for an unmarried person 65 or older or $1,650 for each married spouse 65 or older. Because Colorado begins after these are subtracted, they reduce Colorado tax as well. (Internal Revenue Service, Revenue Procedure 2025-32 (2026 standard deduction and additional amounts))

The federal senior deduction available for 2025 through 2028 is $6,000 for each person 65 or older, reduced by 6% of modified adjusted gross income above $75,000, or $150,000 on a joint return. It lowers federal taxable income and so carries into the Colorado starting point. In our examples the single retiree and the first couple receive it in full and the couple with $279,500 of income receive none. (26 U.S.C. 151(d)(5)(C), Deduction for seniors)

High earners lose most of the federal deduction for Colorado purposes. A taxpayer with federal AGI above $300,000 must add back federal itemized or standard deductions above a limit, and for 2026 and later that limit drops to $1,000 for a single filer and $2,000 for a joint return, from $12,000 and $16,000 in 2023 through 2025. The federal deduction for overtime pay must also be added back from 2026, while the guide’s list of additions contains no add-back for the federal senior deduction and states that none is required for the tips deduction. (Colorado Department of Revenue: Individual Income Tax Guide)

Colorado’s age-based relief on the income tax return is the pair of subtractions on the Subtractions from Income Schedule (DR 0104AD): Social Security in full from 65, and other pension and annuity income up to whatever remains of the $24,000 limit. Between 55 and 64 the limit is $20,000, with full Social Security relief only under the $75,000 and $95,000 AGI thresholds. Interest, dividends and capital gains are not qualifying income for either subtraction. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

Age is measured at the end of the tax year, so a person who turns 65 in December has the $24,000 limit and the unlimited Social Security subtraction for that whole year. The subtraction applies only to income reported as taxable on the federal return for the same year. (Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (revised January 2025))

The Property Tax, Rent and Heat (PTC) rebate is a separate, income-tested program for full-year residents 65 or older and surviving spouses 58 or older. For the 2025 application year the income limits were $19,094 single and $25,788 married filing jointly, and the rebate was up to $1,178. Applications for 2025 are accepted on form DR 0104PTC until December 31, 2027. (Colorado Department of Revenue: Property Tax, Rent and Heat (PTC) Rebate)

The same three households appear on every state page, so the figures can be compared across states. Each is a full-year resident taking the standard deduction, with no dependents. The figures are state income tax only: any county, city or school district income tax is described on this page but not added in. Pension income is from a private employer, and IRA figures are taxable withdrawals from traditional accounts. The state tax is our calculation from Colorado's published 2026 rules; it is an illustration, not a return.

These households also owe federal income tax, which does not change with the state. The tax bracket calculator and the guide to taxes in retirement cover that side.

Property tax is levied by counties, school districts, cities and special districts. Tax Foundation figures drawn from Census data put Colorado property taxes at 0.50% of owner-occupied home value in 2024, 44th among the states. (Tax Foundation, Property Taxes by State and County, 2026 (comparative figures from Census ACS data))

The senior homestead exemption is reimbursed to local governments by the state. For tax year 2026 the state’s obligation to reimburse counties for homestead exemptions and assessed value reductions, estimated at $202.3 million, will be paid from the General Fund in fiscal year 2026-27 because there is no TABOR surplus to draw on. Legislative Council Staff expects the reimbursement to serve as a TABOR refund mechanism again for tax years 2027 through 2029. (Colorado Legislative Council Staff, Economic and Revenue Forecast, September 2026 (TABOR outlook))

A temporary classification gave a reduced valuation to seniors who had previously qualified for the homestead exemption but lost it by moving. It applied for property tax years 2025 and 2026 only: SB26-116, signed on June 2, 2026, ends the qualified-senior primary residence classification for tax years beginning on or after January 1, 2027. (Colorado General Assembly, SB26-116: Property Tax Modifications)

The state sales tax rate is 2.9%. Cities, counties and special districts in Colorado can also impose tax on sales made within their boundaries, so the rate paid depends on the address. (Colorado Department of Revenue: Sales Tax Guide)

Local taxes make up most of the bill. The Tax Foundation ranks the 2.9% state rate 45th and puts Colorado’s average combined state and local rate at 7.89% as of January 2026, 16th highest in the country, with an average local rate of 4.99%. (Tax Foundation, State and Local Sales Tax Rates, 2026 (comparative figures))

Food bought for home consumption is exempt from the state sales tax, following the list of items that can be bought with federal food benefits, and prescription drugs are exempt. Cities and counties have the option of taxing food, so groceries are taxed locally in some places. This Department of Revenue guidance dates from January 2012. (Colorado Department of Revenue, FYI Sales 4: Taxable and Tax Exempt Sales of Food and Related Items (01/12))

Colorado replaced its inheritance tax with an estate tax in 1980, and that estate tax was defined as the federal credit for state death taxes. When Congress eliminated the credit, the Colorado tax ceased to apply to anyone dying after December 31, 2004, and no Colorado estate tax filing is required for those estates. Legislative Council Staff notes that a Colorado estate tax could be collected again if federal law reinstated the credit. (Colorado Legislative Council Staff: Estate Tax)

The federal estate tax applies in every state. The estate tax calculator estimates both the federal tax and any state tax.

Amendment 87 on the November 3, 2026 ballot would replace the flat rate with a graduated income tax beginning in tax year 2027: 3.7% on taxable income up to $25,000, 4.2% from $25,001 to $100,000, 4.4% from $100,001 to $500,000, 7.4% to $750,000, 7.9% to $1,000,000 and 8.4% above. The fiscal impact statement shows a single set of brackets, which are permanent and not adjusted for inflation. A retired couple with $150,000 of Colorado taxable income would pay about $325 less than under a flat 4.4%. (Colorado Legislative Council Staff, 2026 ballot measure fiscal impact statements (Amendment 87: Graduated Income Tax))

The Department of Revenue has published two drafts of the 2027 employer withholding worksheet, one for a flat tax and one for a graduated tax, noting that the withholding formula may be affected by the outcome of this year’s ballot measures and that the final form will follow later in the year. This page describes 2026 law, which the measure does not change, and will be updated once the result is certified. (Colorado Department of Revenue: 2027 DR 1098 withholding worksheet drafts (flat tax and graduated tax))

Looking further ahead, Legislative Council Staff’s September 2026 forecast does not expect the temporary income tax rate reduction to be triggered for tax years 2027 or 2028, and projects a reduction from 4.40% to 4.36% for tax year 2029. Those projections were prepared under current law, before the vote on Amendment 87. (Colorado Legislative Council Staff, Economic and Revenue Forecast, September 2026 (TABOR outlook))

The last TABOR sales tax refund was for tax year 2025, claimed on returns filed in 2026: $19 to $59 for single filers and $38 to $118 for joint filers, rising with adjusted gross income across six tiers. Only full-year residents qualified. (Colorado Department of Revenue, Income Tax Topics: State Sales Tax Refund)

A person is a Colorado resident if they are domiciled in the state, or if they maintain a permanent home in Colorado and spend, in aggregate, more than six months of the tax year there. Domicile is the place a person regards as home and returns to, and the Department of Revenue looks at objective evidence such as voter registration, driver’s license, vehicle registration, property ownership and where the family lives. Residents are taxed on all income from every source. (Colorado Department of Revenue: Individual Income Tax Guide)

Part-year residents and nonresidents complete Form 104PN with the DR 0104. Tax is first computed as though the person were a full-year resident and is then multiplied by the ratio of Colorado income to total income. The pension and annuity and Social Security subtractions are allowed only to the extent the related income is counted as Colorado income, so a mid-year arrival does not receive the full $24,000. The same guidance treats retirement income as defined in 4 U.S.C. 114 as not Colorado-source when a nonresident receives it. (Colorado Department of Revenue, Income Tax Topics: Part-Year Residents and Nonresidents)

Federal law (4 U.S.C. 114) bars a state from taxing the retirement income of a non-resident. A PERA pension or an IRA built during a Colorado career is therefore taxed only by the state where the retiree lives when it is paid, and a pension earned elsewhere becomes Colorado income, subject to the subtraction, once the retiree is a Colorado resident. (4 U.S.C. 114, Limitation on State income taxation of certain pension income)