Does Colorado Tax Unemployment Benefits? 1099-G and Withholding

Yes, Colorado does tax unemployment benefits. The state applies its flat 4.40% income tax to unemployment compensation, and the federal government taxes it as ordinary income on top of that. Because Colorado calculates your bill by starting from your federal taxable income — which already counts unemployment as income under federal law — you owe state tax on those benefits unless your total income for the year is low enough to wipe out your federal taxable income entirely.¹²

How the Colorado Tax Works

Colorado doesn’t write its own definition of taxable income. It takes the federal taxable income figure from your federal return and applies a flat 4.40% to it.¹ Your federal standard deduction is already subtracted before the state does any math.

That piggyback has a useful side effect. If your total income for the year is low enough that federal taxable income lands at zero after the standard deduction, Colorado tax is zero too. A single filer whose only 2026 income was $14,000 in unemployment would fall under the $16,100 federal standard deduction and owe nothing to either government.³

Colorado offers no special subtraction or exclusion for unemployment compensation. The state briefly matched a federal exclusion for 2020 that let taxpayers leave out up to $10,200, but that was a one-year measure and doesn’t apply now.⁴

The Federal Side

Federal law treats unemployment as gross income.² Your benefits stack on top of everything else you earned and get taxed at whichever bracket applies. For 2026, rates start at 10% on the first $12,400 of a single filer’s taxable income and climb to 37% above $640,600.³ Most people receiving unemployment sit in the 10% or 12% band, but your total income for the year decides.

One real difference from wages: unemployment isn’t subject to Social Security or Medicare taxes. The 6.2% and 1.45% you saw taken out of paychecks don’t come out of unemployment payments, so more of each payment lands in your account. The tradeoff is that the payments don’t build Social Security work credits.

You may owe no federal tax at all if your total income stays below the standard deduction for your filing status. For 2026 that’s $16,100 single, $24,150 head of household, and $32,200 married filing jointly.³

Unemployment and the Earned Income Tax Credit

One boundary catches a lot of people. Unemployment benefits are not earned income for the EITC. You need wages or self-employment income to qualify, and unemployment payments can’t fill that requirement.⁵ If unemployment was your only income, you’re not eligible. If you had some wages too, the unemployment still raises your adjusted gross income, which can shrink the credit or phase it out. The benefits don’t help you qualify but they can hurt.

The 1099-G You’ll File With

Each January the Colorado Department of Labor and Employment issues Form 1099-G showing what it paid you the previous year.⁶ You’ll need it for both returns. The boxes that matter:

Box 1 shows total unemployment paid to you before any withholding.⁷
Box 4 shows federal income tax withheld, if you elected it.
Box 11 shows state income tax withheld.

You can pull your 1099-G from the MyUI+ portal. Check the numbers against your own payment records before you file. The IRS gets the same form, so a mismatch between what you report and what the form shows will slow processing or trigger a notice. If something looks wrong, contact the Department of Labor and Employment before you submit your return.

Having Taxes Withheld From Each Payment

The cleanest way to avoid a bill in April is voluntary withholding. You can set up both federal and state at the same time.

Federal withholding is a flat 10% of each payment. That’s the only rate available; you can’t pick a different percentage.⁸ You elect it on IRS Form W-4V, which you give to the state agency paying you rather than the IRS.⁹ In Colorado you can also turn it on through MyUI+ when you file your initial claim or at any time afterward.

State withholding is elected the same way, through MyUI+. Setting up withholding at the beginning of your claim beats adjusting mid-claim, because the election only affects future payments. If the state withholding rate comes out below the 4.40% actually owed, you’ll still see a small balance at filing.

Paying Quarterly Instead

If you didn’t withhold, or benefits started before you got withholding set up, quarterly estimated payments are the alternative. Colorado’s due dates are:¹⁰

April 15 for the first quarter
June 15 for the second quarter
September 15 for the third quarter
January 15 of the following year for the fourth quarter

Send state payments to the Colorado Department of Revenue at 4.40%. For federal, use IRS Direct Pay or the Electronic Federal Tax Payment System on the same schedule. Colorado charges interest on underpaid estimates, calculated on the shortfall and the time it stayed unpaid.¹¹ Federally, you generally avoid an underpayment penalty if you owe less than $1,000 at filing after withholding and credits.

If You Have to Repay Overpaid Benefits

When the Department of Labor and Employment determines you were overpaid, how the repayment gets treated depends on timing and size.

Repay in the same calendar year and your 1099-G should show only the net amount you kept. Nothing further to do.

Repay in a later year and it gets harder. For repayments of $3,000 or less, current federal law gives you no deduction; the 2017 tax reform removed the miscellaneous itemized deduction that used to cover this.¹²

For repayments over $3,000, the claim-of-right doctrine gives you a better route. You calculate the tax you actually paid in the year you received the benefits, then figure what you would have paid if the overpaid amount had never been in your income. The difference becomes a credit on your current year’s return.¹² This usually beats a deduction, especially if your income was higher the year you received the benefits. The calculation means refiguring a prior return, so a larger overpayment is often worth handing to a tax preparer.

1
Colorado General Assembly. Initiative 2025-2026 #21 Income Tax Rate
2
Office of the Law Revision Counsel. 26 USC 85 – Unemployment Compensation
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Colorado Department of Revenue – Taxation. 2020 Unemployment Compensation Exclusion
5
Internal Revenue Service. Earned Income Tax Credit – Do I Qualify
6
Internal Revenue Service. About Form 1099-G, Certain Government Payments
7
Internal Revenue Service. Instructions for Form 1099-G
8
Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source
9
Internal Revenue Service. Form W-4V – Voluntary Withholding Request
10
Colorado Department of Revenue – Taxation. Individual Income Tax – Estimated Payments
11
Legal Information Institute. Colorado Code 39-22-605 – Estimated Individual Income Tax
12
Internal Revenue Service. Specific Claims and Other Issues