Colorado Retirement Income Tax: 2026 Senior Guide

Colorado lets people 65 and older subtract their federally taxed Social Security in full, and it caps the subtraction for qualifying pension, annuity, and IRA income at $24,000. The two do not stack: any subtraction claimed for Social Security reduces the subtraction available for other pension and annuity income.1 The Colorado retirement income tax then applies a flat 4.4% rate to whatever is left.

This guide explains the pension subtraction, the Social Security rules, and how the flat rate ties it all together.

Colorado Retirement Income Tax at a Glance

Here is how Colorado treats each common source of retirement money.

Colorado's approach is built around one broad subtraction that covers several kinds of retirement income, Social Security included. Taxpayers 65 and older may subtract their federally taxed Social Security in full, but claiming that subtraction reduces what is available for other pension and annuity income rather than sitting beside it.1

The flat rate is the other half of the picture. Whatever income is not subtracted is taxed at a single percentage, 4.4%, with no climbing brackets.1

Colorado Retirement Income Tax: How It Works

Colorado has a flat income tax, and the rate varies by tax year. It is 4.4% for tax year 2025; the 4.25% rate applied to tax year 2024, not to 2025.1 Check the rate for the year you are actually filing rather than the year you are filing in. Every dollar of taxable income is taxed at that single rate, so a large withdrawal is taxed at the same percentage as a small one.

The centerpiece for retirees is the pension and annuity subtraction. If you are 65 or older at the end of the tax year, you can subtract up to $24,000 of qualifying retirement income.1 If you are 55 to 64, you can subtract up to $20,000. The subtraction shields that income from the flat rate entirely.

The limits are per person, not per return. On a joint return the subtraction is figured separately for each spouse, so a couple who are both 65 or older can each subtract up to $24,000.1 Do not treat $24,000 as the ceiling for the household.

That subtraction is broad, and what counts is defined by where the income lands on your federal return for the same year you claim it. The Department of Revenue names four lines: pensions and annuities on line 5b, Social Security benefits on line 6b, certain IRA distributions on line 4b, and disability payments on line 1h received because the recipient has not yet reached retirement age.1 So a 67-year-old taking a qualifying IRA distribution to cover care draws on the same subtraction as a retiree cashing a pension check, under the same limit.

That fourth line is easy to miss and it is the one that reaches people who are not retired at all. Disability payments reported on line 1h, received because you have not yet reached retirement age, qualify for the same subtraction.1 If a disability is what stopped the paycheck, check that line before assuming the subtraction is for retirees only.

One category is carved out. A distribution from an IRA or a self-employed retirement plan that is premature for federal income tax purposes does not qualify for the subtraction at all.1 If an early withdrawal is on the table to cover a care bill, check how it is treated federally before counting on the subtraction.

Railroad retirement benefits run on a separate track. They are subtracted as a railroad retirement benefits subtraction, and that subtraction is not subject to the $20,000 and $24,000 limits.1

Under 55 and Receiving a Survivor Pension

The age floor has one exception, and it is the one most summaries drop. An individual under age 55 may claim the subtraction, limited to $20,000, for pension and annuity income received as a death benefit, meaning benefits received because the person originally entitled to them died.1 A death benefit is the only basis on which someone under 55 may claim the subtraction at all; there is no other route in below that age.1

So a 52-year-old widow drawing her husband's pension is not shut out because of her age. She subtracts up to $20,000 of that survivor income. Once she is 55 or older, the age tiers take over and it no longer matters whether the benefit was a death benefit: taxpayers 55 and older may claim the subtraction for pensions and annuities regardless.1

How the Social Security Subtraction Fits In

Colorado treats Social Security generously. Taxpayers 65 and older may subtract the entire amount of their federally taxed Social Security benefits.1 Whatever the IRS taxed federally, Colorado subtracts back out for those 65 and up.

The part that trips people up is what that subtraction costs you elsewhere. It is not an extra allowance sitting beside the pension cap. Any subtraction claimed for Social Security reduces the subtraction you can claim for any other pension and annuity income.1 Social Security and your pension draw on the same allowance, not two separate ones.

That relief now reaches younger retirees. For income tax years beginning on or after January 1, 2025, taxpayers ages 55 to 64 may also subtract the entire amount of Social Security included in their federal taxable income, as long as adjusted gross income is $75,000 or less filing individually, or $95,000 or less filing jointly.1 The change was enacted by House Bill 24-1142, signed on June 6, 2024. For taxpayers 55 to 64 whose adjusted gross income is above those thresholds, the cap remains at $20,000.1

Put together, a Coloradan 65 or older can subtract the full amount of their federally taxed Social Security, and claiming it reduces the subtraction they can claim for any other pension and annuity income.1 This guide does not estimate how far it reduces it, so work the figure through your Colorado return rather than assuming how much of the $24,000 is left. The flat rate applies to whatever ends up unsubtracted.

What This Means for Paying for Care

If you are drawing on retirement savings to pay for senior care, Colorado's rules work in your favor, up to a point.

A withdrawal that fits inside your pension and annuity subtraction is shielded from Colorado tax entirely.1 If you are 65 or older, the subtraction runs up to $24,000 of qualifying pension, annuity, and IRA income a year, and claiming a Social Security subtraction reduces what is left of it.1 That is still real relief when care costs force larger withdrawals, but it is less room than the headline number suggests for anyone drawing Social Security.

The cap is where this stops working for you. Retirement income the subtraction does not cover is taxed at the flat rate.1 A big one-time withdrawal to cover a year of care can blow past the subtraction, leaving the excess taxable. Spreading withdrawals across years keeps more of each year's draw inside the cap.

There is also a federal layer the Colorado subtraction does not touch. A large withdrawal still counts on your federal return. The Medicare surcharge on Part B and Part D premiums is based on modified adjusted gross income and generally uses your tax return from two years earlier, so a withdrawal that raises that income can raise your premiums two years out.2 So even when Colorado shields a withdrawal, the federal side may not. That is one more reason to keep annual draws steady rather than lumpy, and to plan the withdrawal schedule before care costs force your hand.

For the federal mechanics of these withdrawals, including the early-withdrawal penalty and required distributions, see our guide to using retirement accounts for care. To sequence your income sources so each year's withdrawal stays within the subtraction, see building a senior care funding plan. If you are just starting to map the money, begin with how to pay for senior care.

A tax professional can confirm how much of your withdrawal the subtraction will cover. The Colorado Department of Revenue publishes the rules for the pension, annuity, and Social Security subtractions.

What Colorado's Rules Add Up To

Colorado's treatment of retirement income comes down to three pieces: a full Social Security subtraction for those 65 and older, a pension and annuity subtraction capped at $24,000, and a flat 4.4% rate.1

The design fits the typical retiree's income mix, but the pieces share one allowance rather than stacking. Social Security comes out in full for those 65 and older; claiming it reduces the $24,000 subtraction available for other retirement income; and anything past that is taxed at the flat 4.4% rate rather than at a climbing bracket.1 The expansion of the Social Security subtraction to the 55-to-64 band extends that same full relief to early retirees within the $75,000 and $95,000 income limits, and leaves a $20,000 cap for those above them.1

The limit is the subtraction cap. A retiree drawing well above what the subtraction covers will pay the flat rate on the excess.1 For high-withdrawal retirees, more of each year's income falls outside the subtractions and is taxed at 4.4%.

For retirees living on Social Security and moderate withdrawals, the subtraction can shield part of that income, just not as much as the headline cap implies once Social Security is in the picture. Work the figures through your Colorado return, or with a tax professional, before you plan a year's withdrawals.

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The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.