Colo. Code Regs. 39-22-604

Current through Register Vol. 47, No. 20, October 25, 2024

Rule 39-22-604 - Colorado Income Tax Withholding

Basis and Purpose. The statutory bases for this rule are sections 39-21-112(1), 39-21-119(3), 39-22-103(11), and 39-22-604, C.R.S. The purpose of this rule is to clarify the requirements for employers to withhold Colorado income tax from employee wages.

(1)General Rule. Except as otherwise provided in this rule, every employer making payment of wages shall withhold from such wages an amount of tax, as determined pursuant to section 39-22-604, C.R.S., and this rule, and report and remit such withheld tax in accordance with the same.

(a) Colorado wages subject to withholding under this rule are any wages for services performed:

(i) either wholly or partially in Colorado by an employee who is not a Colorado resident or domiciliary, or

(ii) either inside or outside of Colorado or both by an employee who is a Colorado resident or domiciliary.

(b) The withholding requirements prescribed by section 39-22-604, C.R.S., and this rule apply to every employer making payment of Colorado wages, as defined in this paragraph (1), irrespective of whether the employer maintains a permanent place of business in Colorado.

(2)Definitions. As used in this rule, unless context otherwise requires:

(a) "Department" means the Department of Revenue.

(b) "Employee" and "employer" have the same meaning as given in section 39-22-604(2), C.R.S. Additionally, in accordance with section 39-22-103(11), C.R.S., in determining whether parties to a relationship are considered employer and employee subject to the provisions of this rule, due consideration shall be given to applicable sections of the Internal Revenue Code, federal rulings, and federal regulations. In general, a relationship constituting an employer-employee relationship for federal income tax wage withholding purposes will similarly constitute an employer-employee relationship for the purposes of this rule.

(c) "Wages" shall have the same meaning as given in section 39-22-604(2)(c), C.R.S.

(3)Wages Not Subject to Colorado Withholding Requirement. No withholding is required under this rule for:

(a) wages paid to a Colorado resident for services performed in another state that imposes income tax withholding requirements on such wages;

(b) any remuneration specifically excluded from the definition of wages under section 3401(a) of the Internal Revenue Code; or

(c) wages exempt from Colorado income tax withholding pursuant to:

(i)49 U.S.C. § 11502 as compensation paid to a rail carrier Employee who is not a Colorado resident and who performs regularly assigned duties as a rail carrier Employee on a railroad in more than one State;

(ii)49 U.S.C. § 40116(f) as pay of an air carrier Employee who is not a Colorado resident and who earns no more than fifty percent of his or her pay in Colorado;

(iii)49 U.S.C. § 14503(a) as compensation paid to a motor carrier Employee who is not a Colorado resident and who performs regularly assigned duties in two or more States as such a motor carrier Employee with respect to a motor vehicle;

(iv)50 U.S.C. § 4001(b) and section 39-22-109(2)(b), C.R.S., as compensation paid for military service to a service member who is not a Colorado resident or domiciliary;

(v)50 U.S.C. § 4001(c) as compensation paid to the spouse of a military service member if such spouse is not a Colorado resident or domiciliary and is in Colorado solely to be with the service member serving in compliance with military orders;

(vi) section 39-22-604(2)(a), C.R.S., as compensation paid to any nonresident individual or non-domiciliary of Colorado who performs services in connection with any phase of a motion picture, television production, or television commercial for less than 120 days during the calendar year;

(vii) sections 39-22-604(19) and 39-22-104(4)(t), C.R.S., as compensation paid to a Colorado nonresident for performing disaster-related work; or

(viii) sections 39-22-604(20) and 39-22-104(4)(u), C.R.S., as compensation paid to an active duty service member in the armed forces of the United States who reacquires residency in Colorado pursuant to section 39-22-110.5, C.R.S.

(4)Registration to Withhold Tax.

(a)Opening an Account. Every employer subject to the withholding requirements prescribed by this rule and section 39-22-604, C.R.S., shall apply for and maintain an active wage withholding account with the Department.

(b)Closing an Account. An employer with an active wage withholding account who ceases to pay wages subject to withholding under this rule shall:

(i) promptly notify the Department of such cessation either online at Colorado.gov/revenueonline or by submitting the applicable Departmental form;

(ii) by the applicable due date established in paragraph (7)(b) of this rule submit a return for tax withheld through the date of the final wage payment along with payment of any tax due; and

(iii) furnish Internal Revenue Service Forms W-2 to all employees and the Department pursuant to paragraph (8) of this rule for the period from January 1 through the date of the final wage payment.

(5)Withholding Certificate.

(a) On or before the date of the commencement of employment with an employer, the employee shall furnish the employer with a signed withholding certificate. The employee may furnish the employer with a new withholding certificate at any time during their employment.

(i) Except as provided in paragraph (5)(a)(ii) of this rule, the Internal Revenue Service Form W-4, "Employee's Withholding Certificate" furnished to the Employer pursuant to section 3402 of the Internal Revenue Code shall also serve as the withholding certificate required to be furnished under this paragraph (5) and section 39-22-604(16), C.R.S. Except as otherwise provided in this rule, such certificate shall be prepared, take effect, and be subject to change in accordance with section 3402 of the Internal Revenue Code.

(ii) In addition to Internal Revenue Service Form W-4, an employee may elect to furnish their employer with a completed form DR 0004, "Colorado Employee Withholding Certificate". If an employee elects to furnish their employer with a completed form DR 0004, pursuant to this paragraph (5)(a)(ii), such form shall, along with their IRS Form W-4, serve as the withholding certificate required to be furnished under this paragraph (5) and section 39-22-604(16), C.R.S.

(b) In accordance with this paragraph (5)(b), the Department may adjust the withholding amount required for an employee and the withholding allowance used in the calculation thereof.

(i) Upon written request from the Department or as directed by guidance published by the Department, an employer shall provide to the Department a copy of any withholding certificate furnished to the employer by an employee..

(ii) Prior to making any adjustment, the Department shall notify the employee that the certificate previously filed by that employee is being examined. The employee shall be allowed to submit, within ten days of receipt of the notice, evidence sufficient to substantiate the information reported by the employee on their withholding certificate. After reviewing any evidence submitted and any other pertinent information, if the Department finds the certificate filed by the employee to be defective, the Department shall notify the employer of any necessary adjustment to the employee's withholding allowance or required withholding amount. The employer shall thereafter withhold in accordance with the notice and any necessary adjustment prescribed therein.

(iii) An employee may request a hearing to protest any adjustment made under this paragraph (5)(b). Such hearing shall be conducted pursuant to section 39-21-103, C.R.S., and any final determination shall be appealable in district court in accordance with section 39-21-105, C.R.S.

(c) The employer is required to request a withholding certificate from each employee. If the employee fails to furnish such certificate, the employer must calculate withholding for such employee as if the employee had filed an Internal Revenue Service Form W-4 indicating that they were a single filer.

(6)Determination of Required Withholding. The required amount of income tax to be withheld shall be computed in accordance with the formula prescribed in guidance published by the Department. The amount of wages used for computing the required amount of income tax to be withheld do not include any wages that, under paragraph (3) of this rule, are not subject to Colorado income tax withholding. The Colorado wages subject to withholding under this rule for a nonresident employee shall be determined in accordance with section 39-22-109(2), C.R.S.

(7)Withholding Tax Filing Periods and Due Dates. An employer required to withhold Colorado income tax must file returns and remit tax quarterly, monthly, or weekly based upon an annual determination made pursuant to this paragraph (7).

(a)Determination of Status. The determination of whether an employer is required to file and remit tax quarterly, monthly, or weekly is based initially on the employer's estimated annual Colorado income tax withholding. Thereafter, if the actual aggregate amount of Colorado income tax withholding reported by the employer for any calendar year exceeds the amount established under this paragraph (7)(a) for the employer's required filing frequency, the employer's required filing frequency shall be redetermined based upon the actual aggregate amount of Colorado income tax withholding reported by the employer for that calendar year. Any change in an employer's required filing frequency based upon a review of the aggregate amount of Colorado income tax withholding reported during a calendar year shall become effective on January 1 of the following year.

(i)Quarterly filing and remittance. An employer is required to file and remit tax quarterly for the entire calendar year if the employer's annual Colorado withholding tax is less than $7,000.

(ii)Monthly filing and remittance. An employer is required to file and remit tax monthly for the entire calendar year if the employer's annual Colorado withholding tax is at least $7,000, but not more than $50,000.

(iii)Weekly filing and remittance. An employer is required to file and remit weekly for the entire calendar year if the employer's annual Colorado withholding tax is more than $50,000.

(b)Due Dates. An employer must file returns and remit any applicable taxes on or before the due dates prescribed in this paragraph (7)(b). If an employer fails to file and remit any applicable tax within the time prescribed by this paragraph (7)(b), penalty and interest shall apply in the manner prescribed by section 39-22-604, C.R.S.

(i)Quarterly filing and remittance. An employer that is required to file and remit tax quarterly must file a Colorado withholding tax return and remit the total Colorado tax due for the calendar quarter on or before the last day of the month following the close of the calendar quarter. Except as provided in paragraph (7)(b)(iv) of this rule, an employer that is required to file quarterly must file a return for each calendar quarter, even if no taxes have been withheld.

(ii)Monthly filing and remittance. An employer that is required to file and remit monthly must file a Colorado withholding tax return and remit the total Colorado tax due for the month on or before the fifteenth day of the following month. Except as provided in paragraph (7)(b)(iv) of this rule, an employer that is required to file monthly must file a return for each month, even if no taxes have been withheld.

(iii)Weekly filing and remittance. An employer that is required to remit tax weekly must remit the total Colorado withholding taxes accumulated as of any Friday on or before the third business day following such Friday.

(iv)Seasonal rule. An employer whose business does not operate continuously throughout the year may request permission from the Department to file returns for only those periods that the business is in operation. If the Department grants such approval, the employer is not required to file returns for those months for which the business does not operate.

(v) If the due date for filing a return and remitting tax falls upon a Saturday, Sunday, or legal holiday, the return and tax shall be deemed timely if filed and remitted on the next business day.

(8)Annual Withholding Information Returns.

(a)Statements for Employees. On any Form W-2 an employer provides, pursuant to section 6051 of the Internal Revenue Code, to an employee who is either a Colorado resident or who performs services for the employer in Colorado, the employer shall report:

(i) the employee's Colorado wages including:

(A) in the case of an employee who is a Colorado resident, the entirety of the employee's wages except for any wages exempted from withholding pursuant to paragraph (3)(b) or (3)(c) of this rule; and

(B) in the case of an employee who is not a Colorado resident, the portion of the employee's wages, excluding any wages exempted from withholding pursuant to paragraph (3)(b) or (3)(c) of this rule, that are Colorado-source income as determined in accordance with section 39-22-109(2), C.R.S.; and

(ii) the amount of Colorado income tax deducted and withheld from the employee's wages.

(b)Filing Forms W-2 with the Department. Every employer shall file with the Department any Forms W-2 reporting Colorado wages pursuant to paragraph (8)(a) of this rule. Such Forms W-2 shall be filed on or before the due date for filing such Forms W-2 pursuant to section 6071 of the Internal Revenue Code.

(i)Mandatory electronic filing. Any employer required by section 6011(e) of the Internal Revenue Code to file any Form W-2 by magnetic media shall electronically file such Form W-2 with the Department in accordance with published Departmental guidance.

(ii) Any Forms W-2 an employer must file pursuant to paragraph (8)(b) of this rule, but for which electronic filing is not required under paragraph (8)(b)(i) of this rule, the employer may elect to file with the Department either:

(A) electronically; or

(B) in paper form along with DR 1093, "Annual Transmittal of State W-2 Forms".

(iii)Penalty for failure to file Forms W-2. If an employer required by this paragraph (8)(b) to file Forms W-2 with the Department fails to do so within the time prescribed, the employer shall be subject to a penalty, at the discretion of the executive director, of not less than five dollars nor more than fifty dollars for each Form W-2 that is not timely filed, unless such failure is shown to have been due to reasonable cause. Any employer required by paragraph (8)(b)(i) of this rule to file Forms W-2 electronically will be deemed to have filed such forms only when the employer has filed such Forms W-2 electronically.

(c)Correction of Statements.

(i) In the time prescribed by section 6051 of the Internal Revenue Code an Employer shall furnish a corrected Form W-2 to both the employee and the Department to show:

(A) the correct amount of wages paid during the prior calendar year if the amount of such wages reported on a statement previously furnished to the employee for such year is incorrect; and

(B) the amount actually deducted and withheld as Colorado income tax if such amount is less or more than the amount reported as tax withheld on the statement previously furnished to the employee for such year.

(9) In accordance with section 39-22-103(11), C.R.S., due consideration shall be given to federal rulings and regulations interpreting the sections of the internal revenue code cited in this rule.

39-22-604

Colorado Register, Vol 37, No. 14. July 25, 2014, effective 8/14/2014

37 CR 18, September 25, 2014, effective 10/15/2014

37 CR 19, October 10,2014, effective 10/30/2014

37 CR 22, November 25, 2014, effective 12/16/2014

38 CR 04, February 25, 2015, effective 3/17/2015

38 CR 07, April 10, 2015, effective 4/30/2015

38 CR 11, June 10, 2015, effective 6/30/2015

38 CR 22, November 25, 2015, effective 12/15/2015

38 CR 24, December 25, 2015, effective 1/14/2016

38 CR 24, December 25, 2015, effective 1/19/2016

39 CR 01, January 10, 2016, effective 1/30/2016

39 CR 16, August 25, 2016, effective 9/14/2016

40 CR 08, April 25, 2017, effective 5/15/2017

40 CR 12, June 25, 2017, effective 7/15/2017

40 CR 16, August 25, 2017, effective 9/14/2017

40 CR 23, December 10, 2017, effective 1/1/2018

41 CR 14, July 25, 2018, effective 8/14/2018

41 CR 20, October 25, 2018, effective 11/14/2018

42 CR 02, January 25, 2019, effective 12/18/2018

42 CR 02, January 25, 2019, effective 12/18/2018, expires 4/17/2019

42 CR 06, March 25, 2019, effective 4/14/2019

43 CR 04, February 25, 2020, effective 3/16/2020

43 CR 13, July 10, 2020, effective 6/2/2020

43 CR 17, September 10, 2020, effective 9/30/2020

44 CR 03, February 10, 2021, effective 3/2/2021

44 CR 07, April 10, 2021, effective 4/30/2021

44 CR 08, April 25, 2021, effective 5/15/2021

45 CR 01, January 10, 2022, effective 1/30/2022

45 CR 04, February 25, 2022, effective 3/17/2022

45 CR 05, March 10, 2022, effective 3/30/2022

46 CR 11, June 10, 2023, effective 5/2/2023

46 CR 09, May 10, 2023, effective 5/30/2023

46 CR 15, August 10, 2023, effective 8/30/2023

1. See § 39-22-103(8), C.R.S., Rules 39-22-103(8)(A) and 39-22-103(8)(B), 1 CCR, 201-2, for definitions and rules to determine if an individual is a resident individual and domiciliary of Colorado. 2. See § 39-22-103(11), C.R.S. regarding reference to the Internal Revenue Code for meaning and interpretation of Colorado income tax statutes. 3. See Special Rule 1 Electronic Funds Transfer, 1 CCR 201-1. 4. Colorado Income Tax Withholding Tables for Employers (DR 1098) 5. Colorado W-2 Wage Withholding Tax Return (DR 1094) 6. Annual Transmittal of State W-2 Forms (DR 1093) 7. Colorado.gov/RevenueOnline for electronic filing