Payroll Taxes in Colorado: Withholding, SUI, FAMLI, and OPT

Payroll taxes in Colorado land on employers at three levels. At the state level you withhold income tax at a flat 4.40%, pay unemployment insurance premiums on the first $30,600 of each employee’s wages, and remit Paid Family and Medical Leave Insurance (FAMLI) premiums totaling 0.88% of wages. Some cities add a monthly occupational privilege tax on top of that. Federal FICA and FUTA obligations run alongside all of it. The filings go through different portals and each agency assesses its own penalties, so the mechanics matter as much as the rates.

Colorado Income Tax Withholding

Every employer paying wages for work performed in Colorado must withhold state income tax.¹ Colorado uses a flat rate rather than graduated brackets. For 2025 the rate is 4.40%.² Because the rate can move slightly year to year under the state’s TABOR refund mechanism, confirm the published rate before updating your payroll system each January.

Withholding is calculated from the federal Form W-4 the employee submitted. If the federal form does not reflect the employee’s Colorado situation accurately, the employee can file Form DR 0004 to adjust for Colorado-specific credits or filing status.¹

The trigger is where the work happens, not where the company sits. An employer that transacts business in Colorado or derives income from Colorado sources withholds on Colorado-performed wages, even without a physical office in the state. Remote workers whose labor is performed in Colorado are covered, and non-residents performing services here have Colorado tax withheld on the portion of wages earned in the state.¹

State Unemployment Insurance

Colorado’s unemployment insurance (SUI) program is funded entirely by employer premiums. For 2026, premiums apply to the first $30,600 of each employee’s annual wages, up from $23,800 in 2024 and $27,200 in 2025.

New employers get an introductory rate tied to their industry classification. For 2026, non-construction and general construction employers start at a combined 3.05%, which folds in a base rate, a support surcharge, and a solvency surcharge. Heavy construction starts around 6.29%.³ Once you have claims history, your rate moves to an experience-based figure. Experience rates for 2026 range from about 0.56% to 7.34% depending on your reserve ratio.⁴

Paying SUI on time also protects your federal FUTA credit. Falling behind at the state level raises your federal cost too, which is covered below.

FAMLI Premiums

Colorado’s Paid Family and Medical Leave Insurance program funds paid leave for serious health conditions, new children, and family caregiving. For 2026 the total premium is 0.88% of each employee’s wages, capped at the Social Security wage base of $184,500.⁵

Employers with ten or more employees split the premium evenly: 0.44% from the employer, 0.44% withheld from the employee. The employer may choose to pay the full 0.88% as a benefit.⁵ Businesses with nine or fewer employees do not owe the employer share, but they still withhold and remit the 0.44% employee portion each quarter.⁶ Skipped remittances can be backdated with interest across multiple quarters.

Local Occupational Privilege Taxes

Several Colorado cities charge a monthly Occupational Privilege Tax (OPT) on employees who work inside city limits. Rates and earnings thresholds are set locally, so employers with workers in more than one municipality need to track each employee’s work location.

Denver’s is the most common. Each taxable employee pays $5.75 per month and the employer pays $4.00 per month for that employee, triggered once the employee earns at least $500 in a calendar month within Denver.⁷ Aurora charges $2 per month with a $250 earnings threshold. Greenwood Village charges $2 each from employee and employer, also at $250 per month. Glendale charges $5 per month from each party at a $750 threshold. Register with each city where employees perform work, because exemptions and deadlines differ.

Federal Payroll Taxes That Run Alongside

Federal obligations usually outweigh the state ones and follow their own schedules.

FICA

Employer and employee each pay 7.65% toward FICA: 6.2% Social Security plus 1.45% Medicare. For 2026 the Social Security portion applies only to the first $184,500 of wages. Medicare has no wage cap. Employees earning over $200,000 individually, or $250,000 for a married couple filing jointly, owe an additional 0.9% Medicare surtax on wages above that threshold. The employer does not match the additional 0.9%, but must withhold it once an employee crosses $200,000.

FUTA

FUTA is employer-only, at a statutory 6.0% on the first $7,000 of each employee’s annual wages.⁸ Employers who pay Colorado SUI on time receive a credit of up to 5.4%, dropping the effective FUTA rate to 0.6%, or a maximum of $42 per employee per year.⁹ If Colorado becomes a credit-reduction state, the 5.4% credit shrinks and the effective rate rises, so check the DOL’s annual list.

Federal Forms

Federal income tax withholding, Social Security, and Medicare are reported quarterly on IRS Form 941. Very small employers with annual employment tax liability of $1,000 or less may file Form 944 annually instead, but only if the IRS notifies them of that option in writing. FUTA is reported annually on Form 940.

Employee or Independent Contractor

Every obligation above turns on the same question: is the worker an employee or a contractor? Misclassification is one of the most expensive payroll mistakes in Colorado because it exposes you to back taxes, penalties, and interest at both federal and state level at once.

The IRS looks at behavioral control, financial control, and the type of relationship, with no single factor decisive. For unintentional misclassification, the IRS can assess 1.5% of wages for the income tax you should have withheld, 100% of the employer’s share of FICA plus 40% of the employee’s share, and $50 for each unfiled W-2. Intentional misclassification jumps to 20% of all wages paid and 100% of both employer and employee FICA shares, with criminal penalties up to $1,000 per worker and up to a year of imprisonment. Company officers personally responsible can face individual liability under Section 6672 of the Internal Revenue Code.

Where and How to File

Colorado runs two separate online systems, and mixing them up is a common source of confusion.

Withholding: Revenue Online

State income tax withholding is filed through the Department of Revenue’s Revenue Online portal. Filing frequency depends on your annual withholding liability, so you may be assigned weekly, monthly, or quarterly deposits.¹ Payments typically go through Electronic Funds Transfer. Keep the electronic confirmations.

SUI and FAMLI: MyUI+ Employer Portal

Unemployment insurance and FAMLI premiums are filed through the MyUI+ Employer portal, run by the Department of Labor and Employment. The portal accepts wage file uploads or manual entry, and successful submissions generate a confirmation number that serves as proof of timely filing.

Local OPT

Occupational privilege taxes go directly to each city. Denver uses its own eBiz Tax Center. Filing calendars and payment methods differ, so employers with workers in multiple cities should keep a separate compliance checklist for each municipality.

Penalties Stack Across Agencies

Colorado’s penalty for late withholding tax is the greater of $5 or 5% of the unpaid tax, plus 0.5% for each full or partial month the balance stays unpaid, capped at 12%.¹⁰ Interest accrues on top from the original due date. Federal failure-to-deposit penalties escalate on their own schedule: 2% at one to five days late, 5% at six to fifteen days, 10% beyond fifteen days, and 15% if the deposit remains unpaid after an IRS demand notice.¹¹

The trap is compounding. One missed quarterly deposit can draw penalties from the IRS for federal taxes, the Department of Revenue for state withholding, the Department of Labor for SUI and FAMLI, and a municipality for OPT. Each agency assesses independently. If you fall behind, correct it immediately rather than waiting for the next filing period, because most penalty calculations run on the number of days outstanding.

Accounts, Records, and New Hire Reporting

Before your first payroll run, get three account numbers in place: a Federal Employer Identification Number (FEIN), a Colorado wage withholding account number from the Department of Revenue, and a separate unemployment insurance account number from the Department of Labor and Employment. Setting them up in advance saves you from filing retroactive corrections.

Federal law under the Fair Labor Standards Act requires payroll records for each employee, including full name, Social Security number, address, hours worked each day and week, pay rate, and total wages paid each pay period. Payroll records must be kept at least three years; supporting documents like time cards and work schedules must be kept at least two.¹²

Colorado also requires employers to report every newly hired or rehired employee within 20 calendar days of the start date, through the Colorado State Directory of New Hires.¹³ The data feeds child support enforcement and other programs, and missing the deadline can draw fines.

1
Colorado Department of Revenue. Withholding Tax Guide
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Colorado Department of Revenue. Individual Income Tax Guide
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Colorado Department of Labor and Employment. Introductory Rates
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Colorado Department of Labor and Employment. Unemployment Insurance Premiums
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Family and Medical Leave Insurance (FAMLI). Premium and Benefits Calculator
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Family and Medical Leave Insurance (FAMLI). Employers
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City and County of Denver. Business Tax FAQs
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Office of the Law Revision Counsel. 26 USC 3301 – Rate of Tax
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U.S. Department of Labor. FUTA Credit Reductions
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Colorado Department of Revenue. Tax Topics: Penalties and Interest
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Internal Revenue Service. Failure to Deposit Penalty
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U.S. Department of Labor. Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards Act
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Colorado Department of Labor and Employment. New Employer Checklist