The Colorado Department of Revenue (CDOR) has the legal authority to collect unpaid state taxes using a wide range of enforcement tools. These may include wage garnishment, bank levies, tax liens, and other actions that can significantly affect your income, assets, or business operations.
Compared to federal tax authorities, Colorado’s state tax authorities often move more quickly to enforce collection. If you miss a deadline or fail to file an income tax return, the consequences can escalate quickly—especially if the remaining balance goes unpaid past the designated tax period.
Colorado residents and business owners may also face action if they fall behind on submitting a sales tax return for Colorado or remit sales tax late. Delays or errors in filing frequency can trigger notices, penalties, and, in some cases, enforced collection through distraint warrants.
This article explains the collection process from start to finish—outlining how CDOR handles delinquent accounts, what notices to expect, and how to respond if you're dealing with tax problems. Whether you're an individual or a business owner, understanding your options early can help you protect your financial situation and avoid further complications.
The Colorado Department of Revenue (CDOR) follows a step-by-step process when collecting unpaid taxes. This sequence typically begins when a return is unfiled, underpaid, or adjusted through audit. Each step includes escalating notices and enforcement powers.
CDOR first sends a billing notice detailing the tax, penalties, and interest owed. This may result from a missing return, underpayment, adjustment, or an audit. Taxpayers are expected to respond or pay promptly.
If the balance remains unpaid, the CDOR issues a notice of deficiency. This formal notice outlines the tax shortfall, includes penalties and interest, and gives taxpayers 30 days to pay or file a written protest. Missing this window allows the amount to become final and enforceable.
After the 30-day protest period, CDOR sends a final determination. The document confirms the tax debt and authorizes immediate enforcement actions, such as garnishments, levies, and liens.
Before more severe action, CDOR typically issues a courtesy Notice of Intent to Issue Tax Levy or Judgment/Lien. This notification is the taxpayer’s final opportunity to pay in full, request a payment plan, or submit documentation for financial hardship.
Understanding this process and acting quickly at each stage can help limit the financial impact and prevent more aggressive enforcement.
The Colorado Department of Revenue can initiate tax collection for several reasons. These triggers generally relate to filing issues, payment failures, or audit results that result in unpaid balances or unresolved tax obligations.
Failing to file a required tax return by the due date can lead to an estimated assessment. CDOR may calculate the tax owed using available data, which can overstate the actual liability—especially if taxable sales are estimated too high. Penalties for non-filing accrue at 5% per month (up to 25% of the unpaid amount), and interest continues to build until the balance is paid. CDOR may begin enforcement actions without further notice if the return remains missing.
Failure to pay the full amount will trigger collection steps even when a return is filed on time. CDOR typically sends an automatic billing notice, followed by penalty assessments and interest charges (currently 7% annually). The longer the balance remains unpaid, the sooner enforcement actions such as levies or garnishments may occur—especially when a remaining balance goes unaddressed during the assigned tax period.
Audits can uncover discrepancies that result in additional taxes owed. These adjustments often happen after federal changes or state-level inconsistencies are flagged. If the audit reveals underreported income or missing sales tax collected, CDOR may recalculate the tax and add penalties. If the balance is not paid or disputed promptly, CDOR may proceed with collection measures.
CDOR reinstates the tax liability and adds a returned payment fee (currently $41) when a payment bounces due to insufficient funds or bank error. A dishonored payment may also lead to faster enforcement if the account is already delinquent or flagged for demanding payment.
Wage garnishment is one of the Colorado Department of Revenue’s most commonly used tools for collecting unpaid taxes. Once your tax debt becomes final, CDOR can contact your employer to withhold a portion of your wages until the balance is paid.
CDOR typically withholds 25% of your disposable income, which refers to the amount left after required deductions such as federal and state taxes, Social Security, Medicare, and unemployment insurance. Voluntary deductions—like retirement contributions or health insurance—are not excluded from the garnishment calculation.
If you filed a joint return, CDOR can garnish wages from both spouses simultaneously. Each spouse may be subject to a 25% garnishment, which can significantly impact household income.
CDOR’s power to garnish wages comes from state law. Specifically, Colorado Revised Statutes §39-21-114. This statute allows the department to levy personal property, including wages, without a court order.
The IRS generally garnishes a smaller percentage—about 15% of gross wages—and offers broader exemptions based on filing status and dependents. Colorado’s process is faster and has fewer built-in protections.
If CDOR begins garnishing your wages, you still have several ways to respond:
A bank levy allows the Colorado Department of Revenue (CDOR) to seize money directly from your bank account to recover unpaid taxes. Unlike wage garnishment, which takes a portion of your paycheck over time, a levy can withdraw all available funds in a single action.
Before issuing a levy, CDOR must:
After completing these steps, CDOR sends a levy notice—a distraint warrant—to your bank or credit union to begin the fund seizure process.
Bank levies are typically one-time events, meaning they apply only to the funds in the account at that moment. However, CDOR can issue additional levies if the debt is not satisfied. Each new levy may target different accounts or be repeated on the same one.
Certain funds may be exempt from seizure, though CDOR often takes the funds first and requires you to prove exemption afterward. Potentially protected sources include the following:
Remember that once funds are levied, CDOR generally will not return them—even if they came from an exempt source—unless you act quickly and provide documentation.
A tax lien is a legal claim that secures the government’s interest in your property when you owe a tax debt. The Colorado Department of Revenue (CDOR) uses liens to protect its ability to collect, often before more aggressive enforcement actions begin. While a lien doesn’t remove your property, it can seriously affect your finances, credit, and ability to sell or refinance.
Public Record and Business Impact
In addition to liens, levies, and wage garnishments, the Colorado Department of Revenue (CDOR) uses other enforcement tools to collect tax debts. These actions can affect your legal ability to operate a business, drive a commercial vehicle, or maintain licenses tied to regulated industries.
Although Colorado no longer suspends most driver’s licenses for unpaid taxes, suspensions can still occur in specific cases:
Before a suspension:
To reinstate a suspended license, you must pay the tax balance and any associated reinstatement fees.
Due to unpaid tax liabilities, CDOR can suspend or revoke business licenses and permits.
Key facts:
CDOR may coordinate with licensing authorities to suspend operations if taxes remain unpaid for businesses in regulated sectors. These include:
A license suspension in these sectors can immediately halt business activity, resulting in lost revenue and reputational damage.
In severe cases, CDOR can seize your property to satisfy unpaid tax debt. This is considered one of the department’s most aggressive enforcement measures.
Here’s how the process works:
You may reclaim the property before the sale by paying the full balance due, including fees and costs.
The Colorado Department of Revenue (CDOR) can intercept state and federal tax refunds to recover unpaid debts. Unlike garnishments or levies, refund intercepts happen automatically and often without additional notice.
CDOR reviews all state tax refunds to check for outstanding balances. If you owe back taxes:
You will not receive a special warning about the intercept beyond the standard collection notices already sent.
CDOR can collect state tax debts using your federal refund through an agreement with the U.S. Department of the Treasury. This process is part of the Treasury Offset Program (TOP).
Here’s how it works:
This process may still happen even if you are actively working with CDOR unless the debt has been paid or resolved.
If multiple agencies are claiming a refund, Colorado follows a specific priority order:
Refund intercepts are difficult to stop once processed, but you may have options in some instances:
CDOR does not accept financial hardship claims as a valid reason to reverse a refund offset. If you expect a refund but have an active tax debt, it’s best to resolve the issue before filing your return.
The Colorado Department of Revenue (CDOR) sends various legal notices throughout the collection process. Each represents a significant step forward in enforcement and is frequently accompanied by tight deadlines. Responding promptly to these warnings can save you from more significant repercussions, such as garnishments or liens.
1. Initial Billing Notice
This notification is the first notice CDOR sends when an unpaid tax debt is discovered. It specifies the tax type and time, such as income or sales tax, and the total amount owed—including any penalties and interest. The notice provides a payment date as well as instructions for submitting it. It could result from a missed return, an underpayment, or an adjustment to your previously filed return.
2. Notice of Deficiency.
If you fail to react to the billing notice, CDOR may issue a Notice of Deficiency. This paper explains why CDOR feels you owe more tax and provides a breakdown of the tax, penalties, and interest levied. Most importantly, you have 30 days to settle the remainder or file a formal objection. The sum will become legally enforceable if you do not answer by the deadline.
3. Final determination and demand for payment
If the 30-day protest period ends without a resolution, CDOR will issue a final determination. This notice confirms the amount owed and allows swift enforcement. At this time, you must settle the entire debt to avoid garnishment, bank levies, or liens. Your administrative appeal rights are usually exhausted once this determination is issued.
4. Notice of Intent To Levy or Garnish
CDOR usually gives you this courtesy notification before freezing your bank account or garnishing your salary. The letter details the proposed action and offers you a limited time to respond (typically 10 days). You can still prevent enforcement at this point by paying in full, seeking a payment plan, or filing a hardship request.
5. Notice of Intent to File Judgment or Lien.
If the debt is not settled, CDOR may issue a notice saying it plans to pursue a lien or civil judgment. This notice includes a last 10-day deadline to pay in certified monies. It also discusses the ramifications of a registered lien, such as how it can harm your credit and prevent you from refinancing or selling the property until the obligation is paid.
6. Notice of Distraint
In the most egregious circumstances, CDOR may seek to take your property or business assets. A Notice of Distraint shows what is taken, what legal authority CDOR is using, and what steps you must take to redeem the property before it is sold at public auction. You can stop the process by paying the entire debt—including interest, penalties, and collection costs—before the scheduled auction.
Failing to respond to a tax notice from the Colorado Department of Revenue (CDOR) can lead to escalating enforcement actions. These notices are legal warnings, and ignoring them may limit your ability to dispute the balance or arrange a resolution.
If you take no action, CDOR may proceed with the following steps:
These consequences often apply once a Notice of Deficiency has gone unanswered and a Final Determination is issued. Unpaid balances related to income or Colorado sales tax are especially likely to trigger collection.
Responding before the enforcement stage helps preserve your rights and may reduce penalties or interest.
Yes. The Colorado Department of Revenue (CDOR) can issue a bank levy to collect unpaid tax debt. This typically happens after the department has assessed the balance, issued a Notice of Deficiency, and sent a Final Determination and Demand for Payment. Once those steps are complete, CDOR may send a distraint warrant to your bank, authorizing the withdrawal of available funds from your account—often without advance warning to you.
Bank levies are common when taxpayers fail to remit tax by the due date or leave a Colorado sales tax return unpaid. Unlike wage garnishment, which occurs gradually, a bank levy can remove all available funds in a single transaction. If the amount seized doesn’t fully cover the debt, CDOR can issue additional levies. To avoid this action, it’s important to respond to notices early and explore payment options before the enforcement phase begins.
The Colorado Department of Revenue (CDOR) can garnish up to 25% of your disposable income to collect unpaid tax debt. Disposable income refers to the amount left after legally required deductions, such as federal and state taxes, Social Security, Medicare, and unemployment insurance. Voluntary deductions like retirement contributions or health insurance are not excluded from the garnishment calculation.
If you filed a joint tax return, CDOR can garnish wages from both spouses at the same time, which can significantly reduce your household income. Additional penalties, including a late filing penalty, may increase the overall balance and extend the duration of the garnishment. To avoid or limit this action, it’s best to respond to notices early and explore payment plans or hardship relief before garnishment begins.
Yes. If the Colorado Department of Revenue (CDOR) has begun garnishing your wages, you still have options. One of the most effective ways to stop garnishment is to pay the full balance owed, either in a lump sum or through certified funds. You can also request a payment plan, which may lead to a temporary pause or reduction in garnishment while the agreement is being processed.
In certain cases, you may qualify for financial hardship relief. To apply, you’ll need to submit Form DR 6596 along with documentation showing that the garnishment creates an undue burden. You may also challenge the assessment if you believe the tax bill is inaccurate or already paid. Consulting a tax professional is highly recommended if you’re unsure which path is best based on your current financial situation.
To reduce the risk of enforced action, it’s important to stay proactive. CDOR enforcement often begins when taxpayers miss notices, skip payments, or file late. Timely action is the best way to prevent wage garnishments, bank levies, or liens.
Here are practical steps you can take:
By staying compliant with filing and payment obligations, you reduce your chances of being flagged for enforced collection.
The Colorado Department of Revenue (CDOR) has the legal authority to collect unpaid state taxes using a wide range of enforcement tools. These may include wage garnishment, bank levies, tax liens, and other actions that can significantly affect your income, assets, or business operations.
Compared to federal tax authorities, Colorado’s state tax authorities often move more quickly to enforce collection. If you miss a deadline or fail to file an income tax return, the consequences can escalate quickly—especially if the remaining balance goes unpaid past the designated tax period.
Colorado residents and business owners may also face action if they fall behind on submitting a sales tax return for Colorado or remit sales tax late. Delays or errors in filing frequency can trigger notices, penalties, and, in some cases, enforced collection through distraint warrants.
This article explains the collection process from start to finish—outlining how CDOR handles delinquent accounts, what notices to expect, and how to respond if you're dealing with tax problems. Whether you're an individual or a business owner, understanding your options early can help you protect your financial situation and avoid further complications.
The Colorado Department of Revenue (CDOR) follows a step-by-step process when collecting unpaid taxes. This sequence typically begins when a return is unfiled, underpaid, or adjusted through audit. Each step includes escalating notices and enforcement powers.
CDOR first sends a billing notice detailing the tax, penalties, and interest owed. This may result from a missing return, underpayment, adjustment, or an audit. Taxpayers are expected to respond or pay promptly.
If the balance remains unpaid, the CDOR issues a notice of deficiency. This formal notice outlines the tax shortfall, includes penalties and interest, and gives taxpayers 30 days to pay or file a written protest. Missing this window allows the amount to become final and enforceable.
After the 30-day protest period, CDOR sends a final determination. The document confirms the tax debt and authorizes immediate enforcement actions, such as garnishments, levies, and liens.
Before more severe action, CDOR typically issues a courtesy Notice of Intent to Issue Tax Levy or Judgment/Lien. This notification is the taxpayer’s final opportunity to pay in full, request a payment plan, or submit documentation for financial hardship.
Understanding this process and acting quickly at each stage can help limit the financial impact and prevent more aggressive enforcement.
The Colorado Department of Revenue can initiate tax collection for several reasons. These triggers generally relate to filing issues, payment failures, or audit results that result in unpaid balances or unresolved tax obligations.
Failing to file a required tax return by the due date can lead to an estimated assessment. CDOR may calculate the tax owed using available data, which can overstate the actual liability—especially if taxable sales are estimated too high. Penalties for non-filing accrue at 5% per month (up to 25% of the unpaid amount), and interest continues to build until the balance is paid. CDOR may begin enforcement actions without further notice if the return remains missing.
Failure to pay the full amount will trigger collection steps even when a return is filed on time. CDOR typically sends an automatic billing notice, followed by penalty assessments and interest charges (currently 7% annually). The longer the balance remains unpaid, the sooner enforcement actions such as levies or garnishments may occur—especially when a remaining balance goes unaddressed during the assigned tax period.
Audits can uncover discrepancies that result in additional taxes owed. These adjustments often happen after federal changes or state-level inconsistencies are flagged. If the audit reveals underreported income or missing sales tax collected, CDOR may recalculate the tax and add penalties. If the balance is not paid or disputed promptly, CDOR may proceed with collection measures.
CDOR reinstates the tax liability and adds a returned payment fee (currently $41) when a payment bounces due to insufficient funds or bank error. A dishonored payment may also lead to faster enforcement if the account is already delinquent or flagged for demanding payment.
Wage garnishment is one of the Colorado Department of Revenue’s most commonly used tools for collecting unpaid taxes. Once your tax debt becomes final, CDOR can contact your employer to withhold a portion of your wages until the balance is paid.
CDOR typically withholds 25% of your disposable income, which refers to the amount left after required deductions such as federal and state taxes, Social Security, Medicare, and unemployment insurance. Voluntary deductions—like retirement contributions or health insurance—are not excluded from the garnishment calculation.
If you filed a joint return, CDOR can garnish wages from both spouses simultaneously. Each spouse may be subject to a 25% garnishment, which can significantly impact household income.
CDOR’s power to garnish wages comes from state law. Specifically, Colorado Revised Statutes §39-21-114. This statute allows the department to levy personal property, including wages, without a court order.
The IRS generally garnishes a smaller percentage—about 15% of gross wages—and offers broader exemptions based on filing status and dependents. Colorado’s process is faster and has fewer built-in protections.
If CDOR begins garnishing your wages, you still have several ways to respond:
A bank levy allows the Colorado Department of Revenue (CDOR) to seize money directly from your bank account to recover unpaid taxes. Unlike wage garnishment, which takes a portion of your paycheck over time, a levy can withdraw all available funds in a single action.
Before issuing a levy, CDOR must:
After completing these steps, CDOR sends a levy notice—a distraint warrant—to your bank or credit union to begin the fund seizure process.
Bank levies are typically one-time events, meaning they apply only to the funds in the account at that moment. However, CDOR can issue additional levies if the debt is not satisfied. Each new levy may target different accounts or be repeated on the same one.
Certain funds may be exempt from seizure, though CDOR often takes the funds first and requires you to prove exemption afterward. Potentially protected sources include the following:
Remember that once funds are levied, CDOR generally will not return them—even if they came from an exempt source—unless you act quickly and provide documentation.
A tax lien is a legal claim that secures the government’s interest in your property when you owe a tax debt. The Colorado Department of Revenue (CDOR) uses liens to protect its ability to collect, often before more aggressive enforcement actions begin. While a lien doesn’t remove your property, it can seriously affect your finances, credit, and ability to sell or refinance.
Public Record and Business Impact
In addition to liens, levies, and wage garnishments, the Colorado Department of Revenue (CDOR) uses other enforcement tools to collect tax debts. These actions can affect your legal ability to operate a business, drive a commercial vehicle, or maintain licenses tied to regulated industries.
Although Colorado no longer suspends most driver’s licenses for unpaid taxes, suspensions can still occur in specific cases:
Before a suspension:
To reinstate a suspended license, you must pay the tax balance and any associated reinstatement fees.
Due to unpaid tax liabilities, CDOR can suspend or revoke business licenses and permits.
Key facts:
CDOR may coordinate with licensing authorities to suspend operations if taxes remain unpaid for businesses in regulated sectors. These include:
A license suspension in these sectors can immediately halt business activity, resulting in lost revenue and reputational damage.
In severe cases, CDOR can seize your property to satisfy unpaid tax debt. This is considered one of the department’s most aggressive enforcement measures.
Here’s how the process works:
You may reclaim the property before the sale by paying the full balance due, including fees and costs.
The Colorado Department of Revenue (CDOR) can intercept state and federal tax refunds to recover unpaid debts. Unlike garnishments or levies, refund intercepts happen automatically and often without additional notice.
CDOR reviews all state tax refunds to check for outstanding balances. If you owe back taxes:
You will not receive a special warning about the intercept beyond the standard collection notices already sent.
CDOR can collect state tax debts using your federal refund through an agreement with the U.S. Department of the Treasury. This process is part of the Treasury Offset Program (TOP).
Here’s how it works:
This process may still happen even if you are actively working with CDOR unless the debt has been paid or resolved.
If multiple agencies are claiming a refund, Colorado follows a specific priority order:
Refund intercepts are difficult to stop once processed, but you may have options in some instances:
CDOR does not accept financial hardship claims as a valid reason to reverse a refund offset. If you expect a refund but have an active tax debt, it’s best to resolve the issue before filing your return.
The Colorado Department of Revenue (CDOR) sends various legal notices throughout the collection process. Each represents a significant step forward in enforcement and is frequently accompanied by tight deadlines. Responding promptly to these warnings can save you from more significant repercussions, such as garnishments or liens.
1. Initial Billing Notice
This notification is the first notice CDOR sends when an unpaid tax debt is discovered. It specifies the tax type and time, such as income or sales tax, and the total amount owed—including any penalties and interest. The notice provides a payment date as well as instructions for submitting it. It could result from a missed return, an underpayment, or an adjustment to your previously filed return.
2. Notice of Deficiency.
If you fail to react to the billing notice, CDOR may issue a Notice of Deficiency. This paper explains why CDOR feels you owe more tax and provides a breakdown of the tax, penalties, and interest levied. Most importantly, you have 30 days to settle the remainder or file a formal objection. The sum will become legally enforceable if you do not answer by the deadline.
3. Final determination and demand for payment
If the 30-day protest period ends without a resolution, CDOR will issue a final determination. This notice confirms the amount owed and allows swift enforcement. At this time, you must settle the entire debt to avoid garnishment, bank levies, or liens. Your administrative appeal rights are usually exhausted once this determination is issued.
4. Notice of Intent To Levy or Garnish
CDOR usually gives you this courtesy notification before freezing your bank account or garnishing your salary. The letter details the proposed action and offers you a limited time to respond (typically 10 days). You can still prevent enforcement at this point by paying in full, seeking a payment plan, or filing a hardship request.
5. Notice of Intent to File Judgment or Lien.
If the debt is not settled, CDOR may issue a notice saying it plans to pursue a lien or civil judgment. This notice includes a last 10-day deadline to pay in certified monies. It also discusses the ramifications of a registered lien, such as how it can harm your credit and prevent you from refinancing or selling the property until the obligation is paid.
6. Notice of Distraint
In the most egregious circumstances, CDOR may seek to take your property or business assets. A Notice of Distraint shows what is taken, what legal authority CDOR is using, and what steps you must take to redeem the property before it is sold at public auction. You can stop the process by paying the entire debt—including interest, penalties, and collection costs—before the scheduled auction.
Failing to respond to a tax notice from the Colorado Department of Revenue (CDOR) can lead to escalating enforcement actions. These notices are legal warnings, and ignoring them may limit your ability to dispute the balance or arrange a resolution.
If you take no action, CDOR may proceed with the following steps:
These consequences often apply once a Notice of Deficiency has gone unanswered and a Final Determination is issued. Unpaid balances related to income or Colorado sales tax are especially likely to trigger collection.
Responding before the enforcement stage helps preserve your rights and may reduce penalties or interest.
Yes. The Colorado Department of Revenue (CDOR) can issue a bank levy to collect unpaid tax debt. This typically happens after the department has assessed the balance, issued a Notice of Deficiency, and sent a Final Determination and Demand for Payment. Once those steps are complete, CDOR may send a distraint warrant to your bank, authorizing the withdrawal of available funds from your account—often without advance warning to you.
Bank levies are common when taxpayers fail to remit tax by the due date or leave a Colorado sales tax return unpaid. Unlike wage garnishment, which occurs gradually, a bank levy can remove all available funds in a single transaction. If the amount seized doesn’t fully cover the debt, CDOR can issue additional levies. To avoid this action, it’s important to respond to notices early and explore payment options before the enforcement phase begins.
The Colorado Department of Revenue (CDOR) can garnish up to 25% of your disposable income to collect unpaid tax debt. Disposable income refers to the amount left after legally required deductions, such as federal and state taxes, Social Security, Medicare, and unemployment insurance. Voluntary deductions like retirement contributions or health insurance are not excluded from the garnishment calculation.
If you filed a joint tax return, CDOR can garnish wages from both spouses at the same time, which can significantly reduce your household income. Additional penalties, including a late filing penalty, may increase the overall balance and extend the duration of the garnishment. To avoid or limit this action, it’s best to respond to notices early and explore payment plans or hardship relief before garnishment begins.
Yes. If the Colorado Department of Revenue (CDOR) has begun garnishing your wages, you still have options. One of the most effective ways to stop garnishment is to pay the full balance owed, either in a lump sum or through certified funds. You can also request a payment plan, which may lead to a temporary pause or reduction in garnishment while the agreement is being processed.
In certain cases, you may qualify for financial hardship relief. To apply, you’ll need to submit Form DR 6596 along with documentation showing that the garnishment creates an undue burden. You may also challenge the assessment if you believe the tax bill is inaccurate or already paid. Consulting a tax professional is highly recommended if you’re unsure which path is best based on your current financial situation.
To reduce the risk of enforced action, it’s important to stay proactive. CDOR enforcement often begins when taxpayers miss notices, skip payments, or file late. Timely action is the best way to prevent wage garnishments, bank levies, or liens.
Here are practical steps you can take:
By staying compliant with filing and payment obligations, you reduce your chances of being flagged for enforced collection.
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