Colorado does not have a local income tax. The state constitution prohibits any city, county, or other local government from taxing a percentage of your earnings, so nothing on your paycheck in Colorado works the way municipal income taxes do in Ohio or Pennsylvania. What some workers do see is a small flat monthly charge called the occupational privilege tax, imposed by Denver and a handful of other cities on people who work within their borders.
Why Colorado Cities Can’t Tax Your Income
The prohibition comes from the Taxpayer’s Bill of Rights, which Colorado voters added to the state constitution in 1992. Article X, Section 20 restricts local governments from creating new taxes without voter approval, and Section 20(8) goes further by permanently banning certain categories of taxes that voters cannot authorize even if they want to. A local income tax is on that banned list, along with state-level real property taxes and graduated state income taxes.1FindLaw. Colorado Constitution Art X Section 20
The ban applies to every municipality in the state regardless of size or home-rule status. No Colorado city can levy a tax calculated as a percentage of what you earn. Cities that want revenue from the working population have to use a different mechanism, and the mechanism most of them settled on is a flat-dollar charge that falls outside the constitutional definition of an income tax.
The Occupational Privilege Tax
The occupational privilege tax, often shortened to OPT and sometimes called a “head tax,” is a fixed monthly fee on people who work inside a city’s limits. The amount is the same for everyone subject to it, whether the worker earns $500 or $500,000 in the month. The tax has two parts: an employee portion withheld from the paycheck, and a business portion the employer pays for each taxable employee.2City and County of Denver, Colorado. Topic No. 61 Occupational Privilege Taxes
The legal authority for cities to charge OPT comes from C.R.S. ยง 31-15-501(1)(c), which allows municipalities to license, regulate, and tax any lawful occupation or business place. The same statute carves out one explicit exemption: oil and gas wells and their associated production facilities cannot be subject to an occupational privilege tax.3FindLaw. Colorado Revised Statutes Title 31 Section 31-15-501
Each city sets its own rate and its own earnings threshold. The tax kicks in only after an employee earns above the threshold in a calendar month, so part-time workers with very low monthly earnings can fall outside it entirely.
Which Colorado Cities Charge It, and How Much
Four cities currently impose the tax:
- Denver charges employees $5.75 per month and employers $4.00 per month per taxable employee. It applies to anyone earning at least $500 in a calendar month from work performed in Denver.4City and County of Denver. Business Tax FAQs
- Greenwood Village charges $2.00 from the employee and $2.00 from the employer each month, with a $250 monthly earnings threshold.5Greenwood Village, CO. Occupational Privilege Tax OPT
- Glendale charges $5.00 from the employee and $5.00 from the employer, for a combined $10.00 per month, with a $750 monthly earnings threshold.6Glendale, CO. Occupational Privilege Tax
- Sheridan charges $3.00 from the employee and $3.00 from the employer per month.7Sheridan, CO. Occupational Privilege Tax
Aurora used to charge a $2.00 employee and $2.00 employer OPT, but the city repealed the tax effective January 1, 2025. Aurora paychecks should no longer show a withholding for it.8City of Aurora. Occupational Privilege Tax
No other Colorado municipality imposes an OPT, and, again, no municipality imposes anything resembling a percentage-based income tax.
Who Owes the Tax
Commuters
The tax follows the work, not the worker’s home. If you live in a suburb without an OPT but commute into Denver, you owe the Denver employee portion every month you earn at least $500 there. Your residency does not matter, and neither does where your employer is headquartered.9City and County of Denver. General Tax Information Booklet
Remote Workers
Denver ties the OPT to where you physically perform the work. If your remote workspace is inside Denver and you earn at least $500 in a month from work done there, you owe it. If you work remotely from outside Denver and haven’t done enough work inside the city to cross $500, you don’t.4City and County of Denver. Business Tax FAQs The other taxing cities apply the same principle. That means an employee who splits time between a Denver office and a home in Greenwood Village could, in theory, owe OPT to both cities in the same month if the earnings in each jurisdiction cross that city’s threshold.
Self-Employed Workers and Business Owners
Sole proprietors, partners, and managers who do business in a taxing city owe the business OPT regardless of how much they earn. Denver charges every entity with any business activity in the city a minimum of $4.00 per month. The $500 earnings threshold that applies to employees does not apply to owners and partners, because they are not employees for OPT purposes.2City and County of Denver, Colorado. Topic No. 61 Occupational Privilege Taxes Self-employed workers in Denver set up their own OPT account with the city’s Department of Finance, and sole proprietors and partnerships without employees can pay for the full calendar year in a single lump sum due January 31. Greenwood Village and Glendale apply similar logic: self-employed individuals and officers who aren’t paid a salary or commission owe only the employer portion.6Glendale, CO. Occupational Privilege Tax
Federal Tax Treatment
The employee portion of OPT is generally deductible on your federal income tax return as a state and local tax if you itemize on Schedule A. The federal SALT deduction is capped at $10,000 per return, so the OPT itself is rarely large enough to matter on its own, but it adds to whatever you already pay in Colorado state income tax and local property taxes toward that cap.
For employers, the business portion is an ordinary business expense. It isn’t subject to the $10,000 SALT cap, because it flows through as a cost of doing business rather than a personal deduction.
If You See a Withholding You Don’t Recognize
A paycheck line labeled “OPT,” “occupational privilege,” or “head tax” is the flat monthly fee described above, not a local income tax. If it appears for a city where you didn’t actually perform work, it may have been withheld in error, and Denver accepts refund requests within three years after the return was filed.10City and County of Denver. Claim for Refund Form Anything else labeled as a percentage of your income and attributed to a Colorado city or county is worth questioning, because the state constitution does not allow it.