Employers must deduct and withhold Colorado state income taxes from employee's wages based on the number of tax exemptions claimed for federal income tax purposes. Employers may use official wage bracket tables available from the Department of Revenue, a specific percentage withholding method, or other method set out by the Department, as long as that method results in a reasonable approximation of the employee's actual tax liability.
Withholding applies to wages of residents, regardless of where earned and to wages of nonresidents for income earned in Colorado. Generally, employees who are subject to federal income tax withholding are also subject to state income tax withholding. (Certain agricultural and domestic employees who are exempt from federal withholding are also exempt from state withholding.)
Withholding applies to all wages, including cash payments such as salaries, commissions, and bonuses, as well as the market value of noncash payments such as meals, lodging, and goods. Changes to the federal Internal Revenue Code are automatically adopted by Colorado. Thus, compensation that is subject to federal withholding is also subject to state withholding.