The Colorado DR 0004 withholding certificate is an optional state form that lets you adjust how much Colorado income tax your employer takes from each paycheck. If you never file one, your employer calculates your state withholding from your federal W-4, which usually withholds more than you actually owe and produces a refund in April.1Colorado Department of Revenue – Taxation. DR 0004 – Colorado Employee Withholding Certificate Filing the DR 0004 is worth the effort when the default overlooks something in your situation: a Colorado credit you qualify for, a second job, non-wage income, or a life change that shifted your tax picture mid-year.
When You Should File One
The DR 0004 does not replace your federal W-4. Every employee still needs a W-4 on file by the first day of work. The DR 0004 works alongside it and only for the state portion.2Colorado Department of Revenue – Taxation. Withholding Tax Guide The Colorado Department of Revenue points to a handful of situations where filing one actually changes your paycheck for the better:3Colorado Department of Revenue – Taxation. DR 0004 Employer Resources
- You qualify for Colorado credits that have no federal equivalent, such as the state child tax credit for children under six or the state earned income tax credit. The W-4-based default ignores these.
- You or your spouse work multiple jobs, and combined household income throws off the W-4 estimate.
- You have investment, rental, or self-employment income that payroll withholding doesn’t cover. Line 3 lets you increase your per-paycheck withholding instead of making separate quarterly payments.
- You had a life change (new dependent, divorce, big income shift). You can submit a revised DR 0004 at any time.
If none of these fit and you don’t mind a small refund each spring, you can skip the form. The default withholding is built to cover at least your state tax.1Colorado Department of Revenue – Taxation. DR 0004 – Colorado Employee Withholding Certificate
How to Fill It Out
Download the current version from the Colorado Department of Revenue at tax.colorado.gov/DR0004. The same page hosts a withholding calculator spreadsheet that will do the math for you. Have your most recent federal return and a current pay stub in front of you before you start.
Employee Information
The top of the form asks for your legal name, Social Security number, and filing status. Your filing status should match what you use on your federal return. Getting this wrong cascades into every calculation below it, so check it twice.
The Colorado Withholding Allowance Worksheet
This is where you estimate your annual Colorado tax and convert it into a per-paycheck number. Colorado uses a flat rate of 4.40% applied to your adjusted federal taxable income.4Colorado Department of Revenue – Taxation. Individual Income Tax – Frequently Asked Questions The rate has moved recently under TABOR surplus triggers. It dropped to 4.25% for the 2024 tax year and returned to 4.40% for 2025, so use whatever rate is printed on the current year’s form.5Colorado Department of Revenue – Taxation. Individual Income Tax Guide
Two state credits reduce your withholding through the worksheet:
- The Colorado Child Tax Credit, for qualifying children under age six. The amount varies with your adjusted gross income and filing status. For the 2025 tax year, single filers earning $26,000 or less could claim up to $1,200 per child, with the credit phasing down and cutting off entirely at $77,000 for single filers and $87,000 for joint filers. The 2026 form points to a “Table 2: Child Tax Credit Allowance” for the current year’s figures, which can change with the state revenue forecast.6Colorado Department of Revenue. Income Tax Topics: Child Tax Credit7Colorado Department of Revenue. 2026 Colorado Employee Withholding Certificate
- The Colorado Earned Income Tax Credit, equal to a percentage of your federal EITC. If you claim the federal credit, factor the state match into the worksheet so you don’t over-withhold.
The form directs you to tax.colorado.gov/income-tax-credits for the current amounts and eligibility rules, and those figures shift year to year.7Colorado Department of Revenue. 2026 Colorado Employee Withholding Certificate
Line 3: Extra Per-Paycheck Withholding
Line 3 lets you add a flat dollar amount to each paycheck’s state withholding. To figure the number, estimate your total annual Colorado tax liability, subtract what your employer will already withhold based on the worksheet, and divide the difference by the number of pay periods remaining in the year. This is the line that matters most if you have investment income, freelance earnings, or a working spouse whose employer also withholds Colorado tax. Getting it right can replace quarterly estimated payments entirely.
Claiming Exemption
If your wages are exempt from federal withholding, they’re generally exempt from Colorado withholding.2Colorado Department of Revenue – Taxation. Withholding Tax Guide That applies to a narrow group: employees who had zero federal tax liability last year and expect zero this year. Colorado ties its exemption to the federal rule, so if you’re not exempt on your W-4, you can’t claim exemption here either.
Turning It In
Sign the completed form and give it to your employer’s payroll or HR department. Do not mail it to the Colorado Department of Revenue; the state does not process individual withholding certificates. Your employer uses your DR 0004 alongside the DR 1098 employer worksheet to calculate what to deduct.2Colorado Department of Revenue – Taxation. Withholding Tax Guide
The updated withholding usually takes effect within one or two pay cycles. The certificate stays in force until you submit a new one. Check your first adjusted pay stub to confirm the numbers look right. If you change jobs, the DR 0004 on file becomes void, and you’ll need to complete a new one for your next employer.
Remote and Nonresident Workers
Colorado defines “Colorado wages” as any wages paid to a Colorado resident for work performed anywhere, or wages paid to a nonresident for work performed inside Colorado.2Colorado Department of Revenue – Taxation. Withholding Tax Guide That definition changes who needs the form:
- A Colorado resident working remotely for an out-of-state employer still has Colorado wages. If the employer transacts business in Colorado or derives income from Colorado sources, they must withhold Colorado tax.
- A nonresident working partly in Colorado is only subject to state withholding on the in-state share of wages. The DR 0004 can adjust withholding to reflect that share.
- A nonresident working entirely outside Colorado has no Colorado wages, even if the employer is headquartered in the state, and no Colorado withholding should apply.
Why Accuracy Pays Off
If your combined withholding and estimated payments fall short of what you owe, Colorado charges an estimated tax penalty on each underpaid installment.8Colorado Department of Revenue. Individual Estimated Income Tax Instructions The penalty runs daily at annualized rates that have recently ranged from 11% to 12%, applied to the underpaid amount for the days it stayed outstanding.9Colorado Department of Revenue. DR 0204 – Computation of Penalty Due Based on Underpayment of Estimated Tax On a large shortfall, that grows fast.
The safest floor is withholding that covers at least 100% of your prior-year Colorado tax liability. For most wage earners, either the W-4 default or a properly completed DR 0004 handles that. The risk shows up when you have significant non-wage income and you neither raise withholding on Line 3 nor make quarterly estimated payments with Form DR 0104EP.