January 14, 2021
Colorado income tax withholding rate is decreased to 4.55% effective January 1, 2021
As previously reported, in November 2020 Colorado voters approved Proposition 116, which lowers the state's personal and corporate income tax from for 4.63% to 4.55% effective retroactive to tax years commencing on or after January 1, 2020. (See EY Tax Alert 2020-2730.)
As required under Proposition 116, on December 31, 2020, Governor Jared Polis issued Executive Order D 2020-302 declaring the reduction in the tax rate.
Income tax withholding change applies to wages paid on and after January 1, 2021
In its frequently asked questions about the Colorado personal income tax, the Colorado Department of Revenue states that the new Colorado income tax rate is 4.55% beginning in the 2020 tax year. Accordingly, taxpayers can recover any 2020 excess income tax withholding due them when filing their 2020 Colorado personal income tax return.
The Department told us that, effective January 1, 2021, employers should compute Colorado income tax withholding at 4.55%. The revised 2021 withholding worksheet is expected to be published by the end of January and will be available here. (Phone conversation with Colorado Department of Revenue representative and supervisor.)
EY Payroll News Flash