DOR Taxation web site

Methods of Collection

You must withhold Colorado income tax from any compensation paid to any employee if:


1. The compensation is subject to federal withholding for income tax purposes; and

2. The employee is a Colorado resident (whether working inside or outside of Colorado), or the employee is a nonresident of Colorado performing services in Colorado.


The amount to be withheld is determined by the number of withholding tax exemptions claimed for federal income tax purposes. Generally, self-employed persons are not subject to withholding tax.

 

Please note: There is no separate Colorado form similar to the federal W-4 form that the employee must complete. Use the same exemptions for Colorado withholding as the employee claims on the federal W-4 forms.

 

The two methods to determine the amount to withhold are the Wage Bracket Method and the Percentage Method. Instructions on how to use each method can be found in the Colorado Withholding Tables for Employers (DR 1098).

 

Wage Bracket Method

Withholding brackets based on Federal W-4 allowance amounts. 

Example: Monthly payroll for those filing jointly and paid on or after January 1, with (3) allowances and wages paid fall between $2,300-2,400 would withhold $42.00.

 
Percentage Method
Use employee gross pay. Follow allowance table and refer to percentage withholding table in the Colorado Withholding Tables for Employers (DR 1098).