Code of Colorado Regulations .us



DEPARTMENT OF REVENUE

Taxpayer Service Division - Tax Group

INCOME TAX

1 CCR 201-2

_________________________________________________________________________

Rule 39-22-604. Colorado Income Tax Withholding

Basis and Purpose. The statutory bases for this rule are §§ 39-21-112(1), 39-21-119(3), 39-22-103(11) and 39-22-604, C.R.S. The purpose of this rule is to clarify the requirements for Employers to withhold Colorado income tax from Employee Wages.

(1) General Rule. Except as otherwise provided in this rule, every Employer making payment of Wages shall withhold from such Wages an amount of tax, as determined pursuant to § 39-22-604, C.R.S. and this rule, and report and remit such withheld tax in accordance with the same.

(a) Colorado Wages subject to withholding under this rule are any Wages for services performed:

(i) either wholly or partially in Colorado by an Employee who is not a Colorado resident or domiciliary, or

(ii) either inside or outside of Colorado or both by an Employee who is a Colorado resident or domiciliary.

(b) The withholding requirements prescribed by § 39-22-604, C.R.S. and this rule apply to every Employer making payment of Colorado Wages, as defined in this paragraph (1), irrespective of whether the Employer maintains a permanent place of business in Colorado.

(2) Definitions.

(a) Department. As used in this rule, the term “Department” means the Department of Revenue.

(b) Employees and Employers. As used in this rule, the terms “Employee” and “Employer” have the same meaning as given in § 39-22-604(2), C.R.S. Additionally, in accordance with § 39-22-103(11), C.R.S., in determining whether parties to a relationship are considered Employer and Employee subject to the provisions of this rule, due consideration shall be given to applicable sections of the internal revenue code, federal rulings, and federal regulations. In general, a relationship constituting an Employer-Employee relationship for federal income tax wage withholding purposes will similarly constitute an Employer-Employee relationship for the purposes of this rule.

(c) Wages. As used in this rule, “Wages” shall have the same meaning as given in § 39-22-604(2)(c), C.R.S.

(3) Wages Not Subject to Colorado Withholding Requirement. No withholding is required under this rule for:

(a) Wages paid to a Colorado resident for services performed in another state that imposes income tax withholding requirements on such Wages;

(b) any remuneration specifically excluded from the definition of Wages under I.R.C. § 3401(a); or

(c) Wages exempt from Colorado income tax withholding pursuant to:

(i) 49 U.S.C. § 11502 as compensation paid to a rail carrier Employee who is not a Colorado resident and who performs regularly assigned duties as a rail carrier Employee on a railroad in more than one State;

(ii) 49 U.S.C. § 40116(f) as pay of an air carrier Employee who is not a Colorado resident and who earns no more than fifty percent of his or her pay in Colorado;

(iii) 49 U.S.C. § 14503(a) as compensation paid to a motor carrier Employee who is not a Colorado resident and who performs regularly assigned duties in two or more States as such a motor carrier Employee with respect to a motor vehicle;

(iv) 50 U.S.C. § 4001(b) and § 39-22-109(2)(b), C.R.S. as compensation paid for military service to a servicemember who is not a Colorado resident or domiciliary;

(v) 50 U.S.C. § 4001(c) as compensation paid to the spouse of a military servicemember if such spouse is not a Colorado resident or domiciliary and is in Colorado solely to be with the servicemember serving in compliance with military orders;

(vi) § 39-22-604(2)(a), C.R.S. as compensation paid to any nonresident individual or non-domiciliary of Colorado who performs services in connection with any phase of a motion picture, television production, or television commercial for less than 120 days during the calendar year;

(vii) §§ 39-22-604(19) and 39-22-104(4)(t), C.R.S. as compensation paid to a Colorado nonresident for performing disaster-related work; or

(viii) §§ 39-22-604(20) and 39-22-104(4)(u), C.R.S. as compensation paid to an active duty servicemember in the armed forces of the United States who reacquires residency in Colorado pursuant to § 39-22-110.5, C.R.S.

Regulation 22-604.1. Withholding Tax.

(4) Registration to Withhold Tax.

(a) Opening an Account. Every person, firm, corporation, partnership, etc., who becomesEmployer subject to the withholding requirements prescribed by this rule and § 39-22-604, C.R.S. provisions of this Act as an employer mustshall apply for and maintain an active Wage withholding account with the Department. file an Employer's Registration Report indicating that he will be required to withhold and shall request the Department of Revenue to assign a number identifying him as a withholding agent. This number will appear on the first return mailed by the Department to the employer. The number should also be noted on any inquiries by an employer to the Withholding Tax Section. Department of Revenue. Any employer previously registered with the Department of Revenue who ceases business or who not longer is required to withhold, shall immediately notify the Department of such circumstances.

(b) Closing an Account.If a An employerEmployer with an active Wage withholding account who ceases to pay Wages subject to withholding under this rule shall, within thirty days of such cessation: goes out of business or otherwise permanently ceases to pay wages or other compensation, the employer should notify the Colorado Department of Revenue, Withholding Tax Section, immediately. Proper forms and information will be mailed upon receipt of such advice. In order to close an employer's account, it is necessary to submit:

(i) notify the Department of such cessation either online at revenueonline or by submitting the applicable Departmental form;

(ii) submit a The return of incomefor tax withheld covering payroll since the previous report through the dates of the final last Wage payment along with payment of any tax due; and of wages (plus any adjustments for prior periods) together with payment in full.

(iii) furnish Forms W-2 to all Employees and the Department pursuant to paragraph (8) of this Rule Annual reconciliation report for the period from January 1 through the date of lastthe final Wage payment of wages.

(iii) Wage and tax statements showing all remuneration paid and tax withheld for each employee during the current year.

(5) Withholding Exemption Certificate.

(a) On or before the date of the commencement of employment with an Employer, the Employee shall furnish the Employer with a signed withholding certificate. The Internal Revenue Service Form W-4, “Employee's Withholding Allowance Certificate” furnished to the Employer pursuant to I.R.C. § 3402 shall also serve as the withholding certificate required to be furnished under this paragraph (5) and § 39-22-604(16), C.R.S. Except as otherwise provided in this rule, such certificate shall be prepared, take effect, and be subject to change in accordance with I.R.C. § 3402.

(b) In accordance with this paragraph (5)(b), the Department may adjust the withholding amount required for an Employee and the number of withholding allowances used in the calculation thereof.

(i) An Employer shall submit to the Department a copy of any currently effective withholding certificate upon written request from the Department or as directed by guidance published by the Department.

(ii) Prior to making any adjustment, the Department shall notify the Employee that the certificate previously filed by that Employee is being examined. The Employee shall be allowed to submit, within ten days of receipt of the notice, evidence sufficient to substantiate the correct number of withholding exemptions and allowances. Should the Department find, after reviewing any evidence submitted and any other pertinent information, the certificate filed by the Employee to be defective, the Department shall notify the Employer of any necessary adjustment to the Employee’s withholding allowances or required withholding amount. The Employer shall thereafter withhold in accordance with the notice and any necessary adjustment prescribed therein.

(iii) An Employee may request a hearing to protest any adjustment made under this paragraph (5)(b). Such hearing shall be conducted pursuant to § 39-21-103, C.R.S. and any final determination shall be appealable in district court in accordance with § 39-21-105, C.R.S.

(6) Regulation 39-22-604.3. Determination of Requiredment to Withholding. In order to compute the required amount of income tax to be withheld, an Employer may elect to use the wage bracket method, the percentage method of withholding, or any other method approved by the Department. The amount withheld using either the wage bracket method or the percentage method of withholding shall be computed in accordance with tables and guidance published by the Department. The amount of Wages used for computing the required amount of income tax to be withheld do not include any Wages that, under paragraph (3) of this rule, are not subject to Colorado income tax withholding. The Colorado Wages subject to withholding under this rule for a nonresident Employee shall be determined in accordance with § 39-22-109(2), C.R.S.

(a) Who Must Withhold.

(1) Any employer doing business in Colorado must withhold Colorado income tax from wages paid to any employee who is a Colorado resident or a nonresident of Colorado working in Colorado if such wages are subject to federal income tax withholding.

(2) Withholding is required of employers situated outside the state upon wages, commissions, or other emoluments paid to an employee for services performed within the state, even though the employee may be a nonresident and the employee’s employment in Colorado may be of short duration.

(3) Under Colorado law the same exclusion from withholding and the same withholding exemptions exist as under the Internal Revenue Code. Therefore, agricultural workers and certain other employees specifically excluded from withholding under the Internal Revenue Code will be excluded under the Colorado Act.

(4) The federal W-4 form should be used to determine the number of exemptions to be used for Colorado withholding tax purposes.

(5) Whenever withholding is required under federal income tax law, the withholding deductions must be made for all persons subject to Colorado withholding.

(b) Interstate Commerce and Transportation Employees.

(1) An air carrier must withhold Colorado income tax from any interstate airline employee who is a resident of Colorado or a nonresident who earns over fifty percent of his or her wages in Colorado. An air carrier employee is deemed to have earned more than fifty percent of his or her pay in Colorado if the flight time worked by that employee within Colorado exceeds fifty percent of the total flight time worked by that employee while employed during the calendar year.

(2) A rail carrier subject to regulation by the Surface Transportation Board must withhold Colorado income tax from any interstate employee of any railroad, express company or sleeping car company who is a resident of Colorado.

(3) A motor carrier subject to regulation by the Surface Transportation Board or a motor private carrier must withhold Colorado income tax from any employee who is a resident of Colorado and performs his or her regularly assigned duties on a motor vehicle in two or more states.

(4) A water carrier subject to regulation by the Surface Transportation Board must withhold Colorado income tax from any interstate employee who is a resident of Colorado.

(5) The employers described in this section (b) are not required to file an annual information report with the state of Colorado with respect to any employee described in this section (b) unless more than fifty percent of the compensation paid to such airline employee during the taxable year was earned in Colorado, or unless such employee was a resident of Colorado.

For the purposes of this section (b) “compensation” shall mean all monies received for services rendered by an employee, as defined in this regulation in the performance of his duties and shall include wages and salaries.

(c) Nonresident Employees

(1) Except for those employees described in section (b), if the duties of a nonresident employee involve work both within and without the state of Colorado, tax is to be withheld from that portion of total wages primarily allocable to Colorado. The method of allocation must be submitted to and approved by the Director of Revenue.

(2) If the activities of such employee or agent within Colorado are not in the regular course of the employer's business or if such activities are of extremely short duration, or if such employee or agent is assigned on a variable basis so that consistent and regular division of the duties performed within and without Colorado cannot be determined for withholding purposes, the employer may apply to the Executive Director for specific release from the requirement to withhold giving full particulars of the nature and extent of his Colorado venture and related employment.

(3) Employers, to be relieved of withholding on employees who meet the foregoing conditions, must first secure from the employees an affidavit setting forth the name, address, state of residence, and domicile of the employee. The employer shall, by such reasonable means as are available to the employer, verify the statement contained in the said affidavit and shall thereupon forward such affidavits to the Department of Revenue to support the exemption from withholding claimed by the employee.

(4) At the end of the calendar year, the employer will prepare an information report for each employee so exempted, showing in the wage block the total annual wage and wage allocable to Colorado. These reports shall be forwarded to the Department of Revenue on or before March 15 of the following year.

(5) Failure of any nonresident employee to file a Colorado income tax return and to pay the tax, if any is due, within the time prescribed by law, even though such employee has been granted an exemption from withholding, shall void the exemption from withholding and the employer shall be required to withhold Colorado income tax as herein provided.

(6) Except as provided by Public Law 91-569, no exemption from withholding applies to the wages of an employee who is performing all of his services within Colorado for a definite period of time and who thereafter is reassigned to performing services outside of the state of Colorado.

(7) REGULATION 39-22-604(4) Withholding tTax fFiling pPeriods and dDue dDates.

(1) An employer shall be either a quarterly, monthly, or weekly filer based on an annual determination; in exceptional cases, an employer may be a seasonal filer. An employerAn Employer required to withhold Colorado income tax must file withholding tax returns and remit taxes withheld under one of four rules: the is a quarterly filer, monthly filer, or weekly filer based upon an annual determination., or seasonal rule in paragraph (3) of this regulation.

(2a) Determination of Status. The determination of whether an employerEmployer is a quarterly, monthly, or weekly or seasonal filer for a calendar year is based initially on the Employer’s estimated annual Colorado income tax withholding. Thereafter, on an annual determination made by the Executive Director. With the exception of a seasonal filer, this determination is made based upon the if the actual aggregate amount of Colorado income tax withholding tax reported by the employerEmployer for theany calendar yearlookback period as defined in paragraph (2)(e) of this regulation exceeds the amount established under this paragraph (7)(a) for the Employer’s filing status, the Employer’s filing status shall be redetermined based upon the actual aggregate amount of Colorado income tax withholding reported by the Employer for that calendar year. Any change in an Employer’s filing status required based upon a review of the aggregate amount of Colorado income tax withholding reported during a calendar year shall become effective on January 1 of the following year.

(ia) Quarterly filer. An employerEmployer is a quarterly filer for the entire calendar year if the Employer’s annual aggregate amount of Colorado withholding tax reported for the lookback period is less than $7,000.

(iib) Monthly filer. An employerEmployer is a monthly filer for the entire calendar year if the Employer’s annualaggregate amount of Colorado withholding tax reported for the lookback period is at least $7,000, but not more than $50,000. The Executive Director, upon application therefore, may approve the reclassification of monthly filers to a quarterly filing status if necessary to meet the “no more stringent than corresponding federal requirements” provision of C.R.S. § 39-22-604(4).

(iiic) Weekly filer. An employerEmployer is a weekly filer for the entire calendar year if the Employer’s annualaggregate amount of Colorado withholding tax reported for the lookback period is more than $50,000.

(d) Seasonal filer. An employer is a seasonal filer for the entire calendar year if the business is not operating for the entire calendar year and if there is no Colorado withholding made for that part of the year during which the business is not operating.

(e) Lookback period. The lookback period for each calendar year is the most recent twelve-month period ending June 30. The aggregate amount of Colorado withholding tax liability as originally filed for the lookback period will determine the status as a quarterly, monthly, or weekly filer. New employers shall be treated as having zero tax liability for any part of the lookback period during which they did not exist as an employer.

(3b) Due Dates. An Employer shall file returns and remit withheld taxes in accordance with this paragraph (7)(b).

(ai) Quarterly rule. An employerEmployer that is a quarterly filer must file a Colorado withholding tax return and payremit the total Colorado tax withheld for the calendar quarter on or before the last day of the month following the close of the calendar quarter. Except as provided in paragraph (7)(b)(iv) of this rule, a quarterly filer must file a A return must be filed for each calendar quarter, even if no taxes have been withheld.

(bii) Monthly rule. An employerEmployer that is a monthly filer must file a Colorado withholding tax return and payremit the total Colorado tax withheld for the month on or before the fifteenth day of the following month. Except as provided in paragraph (7)(b)(iv) of this rule, a monthly filer must file aA return must be filed for each month, even if no taxes have been withheld.

(iiic) Weekly rule. An employerEmployer that is a weekly filer must remit anythe total Colorado withholding taxes accumulated as of any Friday on or before the third business day following such Friday.

(ivd) Seasonal rule. An Employer whose business does not operate continuously throughout the year may request permission from the Department to file returns for only those periods that the business is in operation. If the Department grants such approval, the Employer is not required to file returns for those months for which the business does not operate.In order to file on a seasonal basis, the employer must obtain approval from the Department and supply the scheduled months for which there is withholding. An employer that is a seasonal filer must file a Colorado withholding tax return and pay the Colorado tax withheld on or before the fifteenth day of the month following each month of operation. Returns must be filed for scheduled months of operation even if no taxes have been withheld.

(ev) Filing and payments are required only on business days. If the due date for filing an return and remitting tax falls upon a Saturday, Sunday, or legal holidayon any day that is not a business day, the return and taxes shall be deemedwill be treated as timely paid if filed and paid on the firstnext business day thereafter.

(f) Change of status. When an employer's Colorado withholding tax filing status is required to be changed as a result of a new lookback period, any resulting change in filing status shall become effective on January 1 of the following year.

(4) Required withholding from winnings, which shall include gaming and racing, shall be filed with a return and remitted on a monthly basis on or before the fifteenth of the following month.

(5) Electronic Funds Transfer. Any employer who has an annual estimated withheld tax liability of more than $50,000 must remit any withheld tax by electronic funds transfer (EFT). The annual estimated withheld tax will be based on the tax liability for the most recent twelve month period ending June 30. The EFT shall be made using standard banking conventions as outlined in the application and agreement for EFT between the taxpayer and the Department.

(a) Undue Hardship. The Department may grant in cases of undue hardship a yearly waiver from the requirement to remit all withholding tax liability by EFT. The Department will, upon written request from the taxpayer, grant such request only if it determines, and the employer adequately proves, to the satisfaction of the executive director that good cause exists to allow a waiver for hardship. Taxpayers can submit such written request to the Department each year upon receiving notice of the requirement to make EFT by sending a written request to:

Colorado Department of Revenue

Denver, CO 80261-0009

(i) Undue hardship means excessive or extraordinary hardship. Undue hardship will be determined on a case-by-case basis, and any determination of undue hardship will be fact-specific, and will be limited to the information provided by the taxpayer. Undue hardship cannot be established by general and conclusory statements or on a general distrust of information technology such as the Internet, electronic communications, or the security of information provided by means of electronic transfer. Undue hardship may be demonstrated by the documented general unavailability of the technology and communications systems necessary for electronic filing and electronic payment. Undue hardship may also be demonstrated on the basis of the substantial financial cost to the taxpayer relative to the amount of the tax owed by the taxpayer for the current tax year.

Cross Reference

(1) The publication DRP-5782 describing the EFT Program and Form DR-5785, “Authorization For Electronic Funds Transfer (EFT) For Tax Payments” may be examined at an Colorado State Publications Depository Library (see for a listing of locations). Copies of the publication DRP-5782 describing the EFT program or Form DR-5785, “Authorization For Electronic Funds Transfer (EFT) For Tax Payments” may be obtained from the Department Forms Room, on the first floor at 1375 Sherman Street, Denver, Colorado 80203 and via the Department’s website at:



Scroll down the Web page to the listing of these forms by form number. These forms appear near the bottom of the list.

(8) Annual Withholding Information Returns.

(a) Statements for Employees. On any Form W-2 an Employer provides, pursuant to I.R.C. § 6051, to an Employee who is either a Colorado resident or who performs services for the Employer in Colorado, the Employer shall report:

(i) the Employee’s Colorado Wages including:

(A) in the case of an Employee who is a Colorado resident, the entirety of the Employee’s Wages except for any Wages exempted from withholding pursuant to paragraph (3)(b) or (3)(c) of this rule; and

(B) in the case of an Employee who is not a Colorado resident, the portion of the Employee’s Wages that are Colorado-source income as determined in accordance with § 39-22-109(2), C.R.S.; and

(ii) the amount of Colorado income tax deducted and withheld from the Employee’s Wages.

(b) Filing Forms W-2 with the Department. Every Employer shall file with the Department any Forms W-2 reporting Colorado Wages pursuant to paragraph (8)(a) of this rule. Such Forms W-2 shall be filed on or before the due date for filing such Forms W-2 pursuant to I.R.C. § 6071.

(i) Mandatory electronic filing. Any Employer required by I.R.C. § 6011(e) to file any Form W-2 by magnetic media shall electronically file such Form W-2 with the Department in accordance with published Departmental guidance.

(ii) Any Forms W-2 an Employer must file pursuant to paragraph (8)(b) of this rule, but for which electronic filing is not required under paragraph (8)(b)(i) of this rule, the Employer may elect to file with the Department either:

(A) electronically; or

(B) in paper form along with DR 1093, “Annual Transmittal of State W-2 Forms”.

(iii) Penalty for failure to file Forms W-2. If an Employer required by this paragraph (8)(b) to file Forms W-2 with the Department fails to do so within the time prescribed, the Employer shall be subject to a penalty, at the discretion of the executive director, of not less than five dollars nor more than fifty dollars for each Form W-2 that is not timely filed, unless such failure is shown to have been due to reasonable cause. Any Employer required by paragraph (8)(b)(i) of this rule to file Forms W-2 electronically will be deemed to have filed such forms only when the Employer has filed such Forms W-2 electronically.

(c) Correction of Statements.

(i) In the time prescribed by I.R.C. § 6051 an Employer shall furnish a corrected Form W-2 to both the Employee and the Department to show:

(A) the correct amount of Wages paid during the prior calendar year if the amount of such Wages entered on a statement furnished to the Employee for such prior year is incorrect; and

(B) the amount actually deducted and withheld as Colorado income tax if such amount is less or more than the amount entered as tax withheld on the statement furnished the Employee for such prior year.

(9) In accordance with § 39-22-103(11), C.R.S., due consideration shall be given to federal rulings and regulations interpreting the sections of the internal revenue code cited in this rule.

Cross References

1. See § 39-22-103(8), C.R.S., 1 CCR, 201-2, Regulations 39-22-103(8)(A) and 39-22-103(8)(B) for definitions and rules to determine if an individual is a resident individual and domiciliary of Colorado.

2. See § 39-22-103(11), C.R.S. regarding reference to the Internal Revenue Code for meaning and interpretation of Colorado income tax statutes.

3. See 1 CCR 201-1, Special Regulation 1 for mandatory electronic funds transfer (EFT) payment requirements.

4. Colorado Income Tax Withholding Tables for Employers (DR 1098)

5. Colorado W-2 Wage Withholding Tax Return (DR 1094)

6. Annual Transmittal of State W-2 Forms (DR 1093)

7. RevenueOnline for electronic filing

Regulation 22-604.1. Withholding Tax. [Repealed and replaced with Rule 39-22-604]

Regulation 39-22-604.3. Requirement to Withhold. [Repealed and replaced with Rule 39-22-604]

REGULATION 39-22-604(4) Withholding tax filing periods and due dates [Repealed and replaced with Rule 39-22-604]

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