Colorado taxes retirement income, but lets most retirees subtract a large share of it: up to $24,000 a year per person at 65 and up, $20,000 from 55 to 64, and all of your Social Security once you are 65 or, from 2025, at 55 to 64 under an income limit. The caps were not repealed in 2026, whatever you may have read.
The subtraction, by age
Colorado starts from federal taxable income and lets you subtract pension and annuity income that was included in it. The cap depends on your age on the last day of the tax year:
| Age at year end | Pension, annuity, IRA, 401(k) | Social Security |
|---|---|---|
| Under 55 | Not subtractable, except up to $20,000 received as a death benefit | Same as pension income |
| 55 to 64 | Up to $20,000 | Fully subtractable from tax year 2025 if AGI is $75,000 or under (single) or $95,000 or under (joint); otherwise counts toward the $20,000 |
| 65 and older | Up to $24,000 | Fully subtractable, tax years 2022 and later |
Source: Colorado Department of Revenue, Income Tax Topics: Social Security, Pensions and Annuities (opens in new tab). Checked September 2026.
Three details that decide real dollars:
- It is per person. On a joint return each spouse gets their own cap, measured at their own age. One spouse cannot use the other's unused room.
- Social Security comes off first, and reduces the rest. When you subtract Social Security in full, that amount reduces what is left of the pension cap for other income. A 66-year-old with $30,000 of taxable Social Security and $20,000 of IRA withdrawals subtracts all $30,000 of Social Security and then has no cap left for the IRA. That is still better than one $24,000 cap covering both, but it is not $54,000.
- “Taxable” means the federal figure. Only the portion of Social Security that lands in federal taxable income (line 6b, not 6a) is in play. If none of your benefits are federally taxable, there is nothing to subtract and nothing to worry about.
What changed for 2025 returns
The full Social Security subtraction used to be 65-and-up only. Starting with tax year 2025, the return you file in early 2026, it extends to filers aged 55 to 64 whose federal adjusted gross income is $75,000 or less (single) or $95,000 or less (joint). Cross the line by a dollar and the subtraction falls back to the $20,000 cap. For someone at 62 drawing early Social Security plus a modest pension, that is the difference between paying Colorado tax on a few thousand dollars and paying none.
Because it is a cliff rather than a phase-out, the AGI figure is worth managing in the years it is close. Timing a Roth conversion, a capital gain, or an IRA withdrawal on one side of December 31 or the other can move you across it. That is planning, not preparation, and it is the kind of thing worth asking a CPA about in October rather than April.
The caps were not removed. Two bills tried and failed.
Senate Bill 25-136 (opens in new tab) would have eliminated the dollar caps for everyone 55 and older from 2026. It was postponed indefinitely in committee. House Bill 26-1062 (opens in new tab) tried again for 2027 and met the same end. Financial-planning articles that describe the caps as gone were written when the bills were introduced and never updated. Plan on $20,000 and $24,000.
What counts as pension and annuity income
The subtraction covers pension income from an employer plan, IRA and retirement-plan distributions, Social Security, privately purchased annuities that have matured, and pension income received as a death benefit, to the extent they are in federal taxable income. What it does not do is turn early distributions into something else: a 401(k) withdrawal at 50 is ordinary income with no Colorado subtraction, because the age test is on you, not on the account.
PERA and Denver Public Schools retirees: your pension gets the ordinary subtraction and, for most people, nothing more. A separate subtraction exists only for contributions made between 1984 and 1986. If someone tells you PERA income is exempt in Colorado, they are thinking of another state.
The rate the remainder is taxed at
Whatever survives the subtractions is taxed at Colorado's flat rate: 4.4% for 2025. It was 4.25% in 2024 because a TABOR surplus triggered a temporary cut, and it can move again in any year the state runs over its revenue cap. Our guide to the rate explains the mechanism and why so many pages print the wrong number. Two things retirees miss on that page: the TABOR sales tax refund has to be claimed by checking a box on the return, and the state grants an automatic six-month filing extension that does not extend the time to pay.
When to hire a CPA for a retirement return
A single pension plus Social Security at 70 is a return software handles well, and the subtraction lines are clearly labeled. The situations where a Colorado CPA earns the fee:
- You are 55 to 64 and near the $75,000 or $95,000 line, and want to know which withdrawals to take this year and which to defer.
- A joint return where the spouses are on different sides of 65, or one spouse has most of the Social Security.
- You moved to Colorado, or away from it, during the year.
- You are planning Roth conversions and want the Colorado side modeled, not just the federal side.
- Rental property, a part-time consulting business, or inherited IRA distributions on top of retirement income.
What a Colorado CPA charges for an individual return, and how to choose one, are covered in their own guides. Ask any candidate the 55-to-64 Social Security question; a CPA who works with retirees will know the income limits without looking them up.
Frequently asked questions
Does Colorado tax Social Security benefits?
If you are 65 or older at the end of the tax year, no. Whatever portion of your benefits is taxable on the federal return is subtracted in full on the Colorado return. From tax year 2025, filers aged 55 to 64 also subtract the full amount if their federal adjusted gross income is $75,000 or less (single) or $95,000 or less (joint). Above those limits the $20,000 cap applies. Under 55, Social Security is treated like other pension income and is only subtractable as a death benefit.
Did Colorado remove the caps on the pension subtraction?
No. Two bills proposed it, Senate Bill 25-136 in 2025 and House Bill 26-1062 in 2026, and both were postponed indefinitely in committee. The caps remain $20,000 for ages 55 to 64 and $24,000 for 65 and older. Several websites report the caps as gone starting in 2026. They are not.
Are 401(k) and IRA withdrawals taxed in Colorado?
They are included in federal taxable income and therefore in Colorado taxable income, but they qualify for the same pension and annuity subtraction: up to $20,000 a year at 55 to 64 and $24,000 at 65 and older, per person. Anything above the cap is taxed at the flat rate, 4.4% for 2025.
How does the subtraction work on a joint return?
Separately for each spouse. Two 66-year-olds can each subtract up to $24,000, for $48,000 between them, but one spouse cannot use the other’s unused cap. Social Security on a joint return is apportioned between spouses by each one’s share of the couple’s total benefits before the subtraction is figured.
Does my PERA pension qualify?
Only for the general subtraction above. Most PERA and Denver Public Schools retirement benefits do not qualify for anything beyond it. A further subtraction exists for retirees who made contributions between 1984 and 1986, and for almost nobody else.
I retired to Colorado partway through the year. What do I owe?
Colorado tax on everything you received while domiciled here, plus any Colorado-source income from before you moved, apportioned on a separate schedule. The age tests for the subtractions are measured at the end of the tax year. A move year is one of the situations where a CPA reliably earns the fee.
Sources
- Colorado DOR, Income Tax Topics: Social Security, Pensions and Annuities (opens in new tab)
- Colorado DOR, Information for Retirees (opens in new tab)
- Colorado DOR, Individual Income Tax Guide (opens in new tab) (rates, PERA and DPS, residency)
- SB 25-136 (opens in new tab) and HB 26-1062 (opens in new tab), both postponed indefinitely
General information, not tax advice. Figures were checked against the sources above in September 2026 and can change; confirm with the Department of Revenue or a licensed CPA before acting on them.
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