Colorado does not tax Social Security benefits
Colorado is one of the states that does not impose income tax on Social Security retirement, survivor, or disability benefits. If Social Security is your only income source, you will owe no Colorado state income tax on those payments, regardless of how much you receive.
However, the federal government may still tax your Social Security benefits depending on your total income. Colorado's exemption applies only to state taxes. You may still have a federal tax obligation, and some people in Colorado do file federal returns even when they owe nothing to the state.
The key distinction is between state and federal tax rules. Understanding which applies to you prevents overpaying or underpaying either one.
Key Takeaways
- Colorado does not tax Social Security benefits at the state level, so you owe no Colorado income tax on those payments.
- The federal government may still tax your Social Security benefits if your combined income exceeds certain thresholds, even though Colorado does not.
- Your "combined income" for federal purposes includes half your Social Security plus all other income sources, and the threshold is $25,000 for single filers and $32,000 for married couples filing jointly.
- You can request that the Social Security Administration withhold federal taxes directly from your benefit payments to avoid a tax bill at the end of the year.
- If you work while receiving Social Security before full retirement age, Colorado has no earnings limit, but the federal government does.
How federal taxation of Social Security works
The federal government taxes Social Security benefits using a formula based on your combined income. Combined income is not the same as your total income. It is calculated as your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.
If your combined income falls below $25,000 (single filer) or $32,000 (married filing jointly), you owe no federal tax on your benefits. If it exceeds those thresholds, up to 50 percent or 85 percent of your benefits may be taxable, depending on how far above the threshold you are.
Other income sources that count toward this calculation include wages, pensions, rental income, investment income, and distributions from retirement accounts. Even a small amount of other income can push you over the threshold and trigger federal taxation of your benefits.
What income sources trigger federal taxation
Any income you receive in addition to Social Security counts toward the combined income calculation. This includes wages from employment, net income from self-employment, interest and dividends, capital gains, distributions from IRAs or 401(k) plans, and rental or royalty income.
Certain types of income do not count. Tax-exempt interest (such as interest from municipal bonds) does count toward combined income for Social Security taxation purposes, even though it is exempt from federal income tax itself. This is a common source of confusion.
If you are married and file jointly, both spouses' incomes combine for the calculation. If you are married and file separately, the threshold drops to $0, meaning you will likely owe tax on your benefits no matter what your income is.
Colorado tax forms and reporting requirements
When you file your Colorado state income tax return, you do not report Social Security benefits as income. You can exclude them entirely from your Colorado return, even if you must report them to the federal government.
You will still file a Colorado return if you have other income sources subject to state tax, such as wages, pensions, or investment income. Social Security straightforward does not appear on that return.
If Social Security is your only income, you likely do not need to file a Colorado return at all. However, if you had Colorado income tax withheld from other sources during the year, you may want to file to claim a refund.
Withholding federal taxes from your Social Security check
You can ask the Social Security Administration to withhold federal income tax directly from your monthly benefit payment. This prevents a large tax bill when you file your federal return and spreads the tax cost across the year.
To set up withholding, complete Form W-4V (Voluntary Withholding Request) and submit it to your local Social Security office or mail it to the address on the form. You can choose to withhold 7, 10, 15, or 22 percent of your benefit amount, or you can specify a dollar amount.
You can change or stop withholding at any time by submitting a new Form W-4V. If you receive both Social Security and a pension, you may want to coordinate withholding between the two to avoid overpaying or underpaying.
Working while receiving Social Security in Colorado
Colorado has no state-level earnings limit for people receiving Social Security. You can work and earn as much as you want without affecting your Colorado tax situation.
The federal government, however, does have an earnings limit if you have not yet reached full retirement age. In 2024, if you earn more than $23,400 before the month you reach full retirement age, Social Security will reduce your benefit by $1 for every $2 you earn above that amount. Once you reach full retirement age, there is no federal earnings limit.
Wages you earn are subject to Colorado income tax as normal. They also count toward your combined income for purposes of determining whether your Social Security benefits are taxable at the federal level.
Other Colorado tax considerations for retirees
Colorado offers a pension exemption for certain types of retirement income. If you receive a pension from a government employer (such as a teacher's pension or police pension), you may be able to exclude some or all of it from Colorado income tax, depending on your age and when you started receiving it.
Military retirement pay, federal employee retirement pay, and railroad retirement benefits have their own rules under Colorado law. Social Security is simpler: it is never taxed by Colorado, period.
If you receive income from a part-time job, rental property, or investments, those are subject to Colorado income tax. The fact that you also receive Social Security does not change the tax treatment of that other income.
Frequently Asked Questions
Will I owe Colorado taxes if Social Security is my only income?
No. Colorado does not tax Social Security benefits, so if that is your only income source, you owe no Colorado state income tax. You may still owe federal income tax depending on your combined income, but Colorado will not tax you.
Do I have to file a Colorado tax return if I only receive Social Security?
No, you do not have to file a Colorado return if Social Security is your only income. However, if you had taxes withheld from other income sources during the year, filing may allow you to claim a refund.
What is the difference between Colorado and federal taxation of Social Security?
Colorado does not tax Social Security at all. The federal government taxes it based on your combined income (adjusted gross income plus nontaxable interest plus half your benefits). If your combined income exceeds $25,000 (single) or $32,000 (married filing jointly), up to 85 percent of your benefits may be federally taxable.
Can I prevent federal taxes on my Social Security by living in Colorado?
No. Colorado's exemption applies only to state taxes. Your federal tax obligation depends on federal law and your combined income, not on which state you live in. However, you can request withholding on Form W-4V to spread the federal tax cost across the year.
Does working part-time affect my Social Security taxes in Colorado?
Colorado has no earnings limit, so working does not directly affect your Colorado taxes. However, your wages count toward your combined income for federal purposes, which may trigger federal taxation of your Social Security benefits if your total income is high enough.