Estimated tax penalty

If a taxpayer fails to remit required estimated payments or underpays their required estimated tax, the taxpayer will owe an estimated tax penalty. The penalty is actually an assessment of interest, calculated on the unpaid or underpaid amount, from the due date of the payment until the date the payment is made or the date the annual income tax return is due, whichever is earlier. Annual interest rates may vary from year to year and are listed in the table below. Taxpayers can calculate the estimated tax penalty they owe using form DR 0204.

Annual Interest Rates Calendar year 2022 2023 2024 2025 2026 Interest Rate 6% 8% 11% 12% 11%

In calculating the penalty, a taxpayer’s wage withholding, nonresident real estate withholding, nonresident beneficiary withholding, and sales tax refund credit are treated as a payment of estimated tax, with 25% allocated to each quarter, unless the taxpayer establishes the dates on which the amounts were actually withheld.

Under certain circumstances a taxpayer may be exempt from the requirement to remit estimated payments. A taxpayer will owe no estimated tax payments and owe no estimated tax penalty if either of the following conditions exist:

The taxpayer’s net Colorado tax liability minus all credits, withholding, and any sales tax refund is less than $1,000.

The taxpayer was a full-year resident for the preceding tax year, which consisted of 12 months, and the taxpayer had no net Colorado tax liability for that tax year.

If the tax return is filed and any tax due is paid by January 31 of the following tax year, no penalty will be due for any underpayment of the fourth quarter installment payment.