Colorado · retirees
Colorado for retirees: the pension and Social Security subtractions
Colorado does not tax Social Security at 65, and gives each person up to $24,000 more for pensions and IRAs. But the $24,000 is not on top of Social Security; it is shared with it. How the cap really works, the 55-to-64 income cliff, the PTC rebate, and the mistakes made every season.
Colorado is one of the friendlier states for retirees, and the friendliness has a shape. Social Security comes off entirely at 65. Each person also gets a subtraction for pension, IRA and 401(k) income, up to $24,000 at 65 and $20,000 from 55 to 64. The part people get wrong is that the two are not stacked: the Social Security subtraction uses up the cap first, and only what is left applies to other retirement income. Your age on December 31 decides which row you are in, and each spouse is figured separately.
| Your age on December 31 | Social Security | Pensions, IRAs, 401(k)s |
|---|---|---|
| 65 or older | All of the federally taxable amount | Up to $24,000, minus your Social Security subtraction |
| 55 to 64, AGI up to $75,000 single / $95,000 joint | All of the federally taxable amount | Up to $20,000, minus your Social Security subtraction |
| 55 to 64, AGI above those limits | Up to $20,000 for Social Security and other retirement income combined | |
| Under 55 | Only survivor benefits paid because the original recipient died, up to $20,000. Military retirees under 55 subtract up to $15,000 of military retirement pay through 2028. | |
| Any age | Railroad retirement benefits are subtracted in full, separately, with no cap. | |
Each spouse on a joint return is figured separately, with his or her own age, income and cap. Turn 65 any time during the year and you get the 65-and-older rules for the whole year.
How the cap really works
The $24,000 is not in addition to Social Security. Your Social Security subtraction uses up the cap first, and only what is left is available for pension and IRA income. Social Security itself can go over the cap; nothing else can.
Worked example: three households, one rule
| Pat, 68, single | Lee, 72, single | Sam and Jo, both 67 | |
|---|---|---|---|
| Taxable Social Security | $15,000 | $28,000 | $10,000 each |
| Pension or IRA income | $30,000 IRA | $20,000 pension | Sam: $30,000 IRA; Jo: none |
| Social Security subtraction | $15,000 | $28,000 (over the cap is fine) | $10,000 + $10,000 |
| Room left under the cap | $9,000 | $0 | Sam $14,000; Jo $14,000 |
| Pension/IRA subtraction | $9,000 | $0 | Sam $14,000; Jo $0 (no income of her own) |
| Total subtracted | $24,000, not $39,000 | $28,000; the whole pension is taxed | $34,000; Jo’s $14,000 of room is wasted |
| Colorado tax on what’s left, at 4.40% | $924 on $21,000 | $880 on $20,000 | $704 on $16,000 |
Sam and Jo’s fix: if Jo has an IRA too, taking $14,000 of next year’s withdrawals from hers instead of Sam’s uses both caps and saves $616 of Colorado tax. Room cannot be shifted between spouses; income can.
“Taxable” means taxable. Everything here is based on the federally taxable amount: line 6b of Form 1040 for Social Security, lines 4b and 5b for IRAs and pensions, not the gross amounts on lines 4a, 5a and 6a. If little of your Social Security is federally taxable, it uses up little of the cap, which leaves more room for the IRA.
Many retirees still owe Colorado nothing. Colorado starts from federal taxable income, after the federal standard deduction, the extra deduction for age, and the $6,000 senior deduction. Add the Colorado subtractions on top of that, and a retired couple with $50,000 of Social Security and $48,000 of IRA withdrawals can still owe Colorado nothing. Larger IRA withdrawals, pensions and investment income are where Colorado tax starts.
What counts, and what doesn’t
Counts toward the subtraction: pensions and annuities, including PERA and other government pensions, and matured private annuities; traditional, SEP and SIMPLE IRA distributions, and 401(k), 403(b) and 457 distributions; military retirement pay; taxable permanent disability benefits at 55 or older; survivor benefits under 55 paid directly to you because the original recipient died (code 4 on the 1099-R); pension or IRA payments set out in a divorce decree, in most cases.
Doesn’t count: IRA or 401(k) withdrawals hit with the 10% early withdrawal penalty; disability payments that are not for permanent disability; survivor benefits that pass through a trust or estate before reaching you; anything already subtracted elsewhere on the Colorado return; qualified Roth withdrawals, because they are not taxed to begin with; wages, interest, dividends and capital gains, at any age.
PERA members who contributed between July 1984 and December 1986 may have a small extra subtraction for contributions Colorado already taxed (verify). PERA can provide the statement.
Ages 55 to 64: the income cliff
Since 2025, people 55 to 64 can subtract all of their taxable Social Security if federal AGI is $75,000 or less single, or $95,000 or less joint. One dollar over and the whole thing falls back to the old $20,000 combined cap. There is no phase-in.
Worked example: the $2,000 withdrawal that costs $350
Chris is 62 and single, with $26,000 of taxable Social Security and AGI of $74,000.
| AGI $74,000 | After a $2,000 IRA withdrawal: AGI $76,000 | |
|---|---|---|
| Under the $75,000 line? | Yes | No |
| Social Security subtraction | $26,000 (all of it) | $20,000 (the combined cap) |
| Subtraction lost | $6,000 | |
| Colorado tax on the lost subtraction | $264 | |
| Colorado tax on the $2,000 itself | $88 | |
| Colorado cost of the $2,000 withdrawal | $352, a 17.6% state rate |
The cliff only bites when taxable Social Security by itself is more than $20,000. Below that, the subtraction is the same on either side of the line, because pension and IRA income share the same $20,000 room either way.
Planning around it. Watch the AGI line before December 31. Large IRA withdrawals, Roth conversions and capital gains can wait until the year you turn 65, when the line disappears. Contributions to a 401(k) or HSA, if you are still working, bring AGI down. On a joint return the $95,000 limit applies to combined AGI, and each spouse who is 55 to 64 is tested against it; a spouse who is 65 or older is not affected.
More for Colorado seniors
The federal senior deduction counts here too. The $6,000 federal deduction for people 65 and older, for 2025 through 2028, lowers federal taxable income, which is where the Colorado return starts. Colorado did not add it back, so it cuts Colorado tax as well: $264 per person at 4.40%.
The PTC rebate. Colorado residents 65 or older, or surviving spouses 58 or older, with total income under $19,094 single or $25,788 married for 2025 (verify 2026 figures), can get up to $1,178 back for property tax, rent and heat. It is a separate application, Form DR 0104PTC, and you do not need to file an income tax return to get it.
The senior property tax exemption. If you are 65 or older on January 1 and have owned and lived in your home for 10 straight years, half of the first $200,000 of its value is exempt from property tax. Apply with your county assessor by July 15. Once approved, it stays until the home changes hands, and a surviving spouse can keep it. The temporary portable version for seniors who moved ends after 2026 (verify).
Moving here to retire. Federal law bars your former state from taxing pension and IRA income once you have moved. After you become a Colorado resident, it is Colorado’s to tax, with these subtractions. The move-year return, split between two states, is where the most errors happen.
What ended. The senior housing income tax credit, up to $800, was for 2024 only. A 2025 bill to remove the age limits on the Social Security subtraction died.
Behind the scenes
The Colorado subtraction is figured per person, and the 1099-Rs arrive per person, but the software asks for the couple’s retirement income in a way that invites one number. A preparer splits every 1099-R and SSA-1099 by spouse before touching the Colorado schedule, then checks each spouse’s age against December 31, then checks the taxable amounts against lines 4b, 5b and 6b rather than the gross. Three checks, and they catch the four most common errors on Colorado retiree returns: the subtraction taken once, stacked on Social Security, taken on gross amounts, or taken on a penalized early withdrawal.
The federal side
None of this changes what the IRS taxes. Up to 85% of Social Security is federally taxable depending on provisional income, and that federal taxable figure is what Colorado then subtracts. The federal rules are in How Social Security is taxed; the survivor’s version of all of this, where two subtractions become one, is in The widow’s penalty.
What to bring your preparer
- Each spouse’s SSA-1099 and every 1099-R, kept separate by spouse
- Both dates of birth; age on December 31 decides the row
- For a 1099-R with code 1 (early distribution): whether a penalty exception applies, since a penalized withdrawal does not qualify
- For survivor benefits: the 1099-R showing code 4, and whether it came directly or through an estate
- For a PERA retiree: the PERA statement of previously taxed contributions, if you contributed 1984–1986
- For the PTC rebate: property tax, rent and heat paid during the year
- If you are 55 to 64 and near $75,000 / $95,000: your year-to-date income by November, so withdrawals can be sized
Questions people ask
Do I have to be retired to get the subtraction?
No. It depends on your age and the kind of income, not on whether you are still working. A 66-year-old who works and takes IRA withdrawals still gets it. Wages never qualify.
My spouse is 66 and I’m 61. How does that work?
Each of you is figured separately. Your spouse uses the 65-and-older rules and the $24,000 cap. You use the 55-to-64 rules, including the $95,000 joint AGI limit for full Social Security, and the $20,000 cap.
Does a Roth conversion use up the subtraction?
A conversion is a taxable IRA distribution, so it counts as retirement income for the subtraction, and it raises AGI. That second part matters most for people 55 to 64 near the $75,000 / $95,000 line.
I inherited my late husband’s pension, and I’m 52. Can I subtract it?
Yes, up to $20,000, if it is paid directly to you because of his death. If it comes through a trust or estate first, it does not qualify.
Did Colorado stop taxing all retirement income?
No. Social Security is fully exempt at 65 and older, and under the income limits from 55 to 64. Other retirement income is exempt only up to the cap, after Social Security.
Two subtractions, two spouses, figured separately
That one sentence fixes most of the Colorado retiree returns that go wrong. Bring each spouse’s 1099-Rs and SSA-1099 separately, and ask your preparer to show you both subtraction lines.
Forms and official pages named in this article
- Schedule DR 0104AD, Subtractions from Income (lines for Social Security and pensions)
- Colorado DOR: Income Tax Topics, Social Security, Pensions and Annuities
- Form DR 0104PTC, Property Tax/Rent/Heat Rebate application
- Douglas County Assessor: senior property tax exemption (other counties have the same form)