Live in California, Work in Colorado: Which State Taxes Your Paycheck?
Answer
Expect withholding in Colorado and a return in both. California and Colorado hold no reciprocal agreement, so the overlap is resolved after the fact: Colorado taxes the Colorado-source wages, and your California resident return claims a credit for that tax against the California liability on the same income.
Last verified
Two states can lawfully tax the same wages: Colorado because the work happened there, California because you live there. Nothing prevents the overlap in advance — it is unwound afterwards, on the California return, through the credit for taxes paid to another state.
A California resident taxed by another state on the same income claims the credit for taxes paid to other states on Schedule S. The credit is capped at the California tax on that income, so it removes the double tax but never refunds the excess when the other state charges more.
Colorado also has a layer below the state one, and it is the layer that survives every agreement: A few Colorado cities levy an occupational privilege tax — a flat monthly head charge on anyone working in the city, not a percentage of income. It is not an income tax and no credit offsets it.
What you file
- 1Nonresident return · ColoradoForm DR 0104 with Schedule DR 0104PN
File the Colorado nonresident return FIRST — you need the Colorado tax figure before you can complete California.
- 2Resident return · CaliforniaSchedule S
File a California resident return reporting all income, then claim the credit for tax paid to Colorado. The credit is capped at what California would have charged on that same income, so if Colorado taxes it at a higher rate the difference is not refunded.
The two states, side by side
| California | Colorado | |
|---|---|---|
| Taxes wages | Yes — graduated | Yes — flat |
| Reciprocity partners | None | None |
| Convenience rule | No | No |
| Nonresident return | Form 540NR | Form DR 0104 with Schedule DR 0104PN |
| Credit for other-state tax | Schedule S | Form DR 0104CR |
| Nonresident safe harbour | None published | None published |
| Local income tax | No | Yes |
| Revenue department | California Franchise Tax Board | Colorado Department of Revenue — Taxation Division |
| Last verified |
The other direction
Reversing the commute does not always reverse the answer. Living in Colorado and working in California gives:Both states — credit offsets the double tax.
Same two states, different situation
The withholding answer turns on how you are paid and where the work happens, not only on which two states are involved.
- Remote worker: California → ColoradoHome state only
- 1099 contractor: California → ColoradoHome state, plus the client state if you work there
- Moved mid-year: California → ColoradoTwo part-year returns
Other California pairs
Questions people actually ask
I live in California and work in Colorado. Which state takes the tax out of my paycheck?
Expect withholding in Colorado and a return in both. California and Colorado hold no reciprocal agreement, so the overlap is resolved after the fact: Colorado taxes the Colorado-source wages, and your California resident return claims a credit for that tax against the California liability on the same income.
Which state should my employer be withholding for?
Colorado. The wages are sourced to Colorado, so Colorado withholding is correct and there is no California withholding to set up.
Will I end up paying tax twice on the same income?
Not twice over, but you will pay the higher of the two rates. California gives residents a credit for tax paid to Colorado on the same income, claimed on Schedule S. The credit is capped at the California tax on that income, so if Colorado taxes it more heavily the excess is not refunded by either state.
How current is this?
The California and Colorado rules on this page were last checked against California Franchise Tax Board and Colorado Department of Revenue — Taxation Division on 2026-08-07. We re-check the full grid every December after state legislative sessions close, and re-check the convenience-of-the-employer states quarterly because that is where the rules move fastest.
Sources
Every fact above comes from the revenue department that publishes the rule. We do not cite secondary summaries, and we do not restate a figure we could not find at source.
- California Franchise Tax Board — individual income taxaccessed 2026-08-07
- Colorado Department of Revenue — Taxation Division — individual income taxaccessed 2026-08-07