- The compensation is subject to federal withholding for income tax purposes, and
- The employee is a Colorado resident (whether working inside or outside of Colorado), or the employee is a nonresident of Colorado performing services in Colorado.
The two methods to determine the amount to withhold are the Wage Bracket Method and the Percentage Method. Instructions on how to use each method can be found in the Colorado Income Tax Withholding Worksheet for Employers (DR 1098).
Entities that withhold from amounts paid and reported on a form 1099 must set up a separate tax account with the Department of Revenue to pay the withholding. Examples of these entities are:
- Brokerage companies
- Financial institutions
- Government agencies
- Pension organizations
- Property management companies
Entities that withhold from amounts paid and reported on a form W-2G must set up a separate tax account with the Department of Revenue to pay the withholding. Examples of these entities are:
- Bingo halls
- Race tracks
What if no tax is due for a filing period?
A tax return must be filed even if the tax due is zero. When no return is filed, the department considers that to be a "non-filer" situation. When you don't file a return, you will receive non-filer billing notices by mail. For more information, visit the No Withholding Tax Collected web page.