Colorado Payroll Tax Nonpayment Emergency Checklist

Colorado Payroll Tax Nonpayment Emergency

Checklist

Understanding Wage Withholding Tax Obligations

Colorado wage withholding tax nonpayment occurs when an employer fails to remit state income tax withheld from employee paychecks to the Colorado Department of Revenue by the required deadline. This obligation differs from unemployment insurance taxes, which employers report separately to the Colorado Department of Labor and Employment through a different system.

Filing Frequency and Payment Schedules

Employers must file Colorado wage withholding returns and remit tax on a quarterly, monthly, or weekly basis, depending on their total annual Colorado wage withholding liability. Quarterly filing applies to employers with less than seven thousand dollars in annual withholding, with returns due the last day of the month following each calendar quarter.

Monthly filing applies to employers with at least seven thousand dollars but not more than fifty thousand dollars in annual withholding, with returns due the fifteenth day of the following month.

Weekly filing applies to employers with fifty thousand dollars or more in annual withholding, with returns due the third business day following the Friday that concludes each week.

Reasons the State Issues Nonpayment Notices

The Colorado Department of Revenue issues wage withholding nonpayment notices when returns are filed without payment, when returns are not filed at all by the deadline, or when payments received do not match the tax liability shown on the return. These notices serve as official documentation that a debt exists and inform employers of the amount owed and the enforcement actions the state may take.

Consequences of Ignoring Nonpayment

Ignoring Colorado wage withholding tax nonpayment typically results in escalating enforcement actions from the Colorado Department of Revenue. The department may issue additional notices demanding payment within specified timeframes and may pursue collection measures,

including liens against business or personal assets and wage garnishment from business bank accounts.

Colorado Department of Revenue payroll penalties for late filing or payment equal the greater of five dollars or a percentage of the unpaid tax equal to five percent plus one-half percent for each full or partial month the tax remains unpaid, not to exceed twelve percent. Interest accrues on any late payment from the original due date to the date payment is received, with the interest rate varying by calendar year.

What Nonpayment Does Not Mean

Receiving a Colorado wage withholding nonpayment notice does not mean the state has automatically filed a lien, seized assets, or issued a final assessment that cannot be disputed.

Employers have opportunities to review, contest, or arrange payment before certain enforcement actions occur.

Steps to Address Wage Withholding Nonpayment

1. Locate and review the nonpayment notice

Identify the tax period involved, the amount claimed as owed, any stated deadline for response, and the department contact information provided.

2. Gather payroll records and payment documentation

Collect copies of wage withholding returns filed, payment confirmations, bank statements showing payments made, and any correspondence with the state about this liability.

3. Verify payments made to Colorado

Review bank records, payment receipts, and any state confirmation letters to confirm the exact payment amount and date, ensuring proper credit for Colorado income tax withheld.

4. Calculate the tax liability according to payroll records

Review the original return filed for the period to confirm what amount was reported as owed and compare it to the amount the state claims is owed, using the Colorado Withholding Worksheet to verify calculations.

5. Identify discrepancies

Note any differences in amounts, dates, or periods, such as partial payments not credited properly, duplicate notices for the same period, or payment applications to the wrong tax period.

6. Contact the Colorado Department of Revenue

Call the department using the contact information on the notice to ask specific questions about how the amount was calculated, what payments have been credited, and what documentation would be needed to resolve the matter, or access your account through Revenue Online for payment history details.

7. Prepare payment if owed

Gather funds for the full amount owed or determine if a partial payment is possible, as delays allow penalties and interest to continue accumulating.

8. Discuss payment options if full payment is not possible

Contact the department before the deadline stated in the notice to ask about payment plans, installment agreements, or other arrangements the state may allow.

9. Prepare a written response if disputing the amount

Include copies of supporting documentation, such as payment receipts, bank statements, and payroll records, and explain clearly what the discrepancy is with evidence to support your position. Reference the Colorado form DR 0004 if employee withholding certificates are relevant to the dispute.

10. Send correspondence using certified mail

Use the address on the notice and maintain copies of everything sent, requesting written confirmation from the state that payment was received and applied correctly to your account.

Payment Application and Statute of Limitations

The Colorado Department of Revenue applies payments remitted without an accompanying departmental form to the liability for the earliest debt recorded on the department’s systems for the particular tax type. A statute of limitations for collecting unpaid tax debt spans six years from

the date of assessment, though this period can be extended when a written waiver agreement exists between the taxpayer and the department.

Common Errors to Avoid

Employers frequently ignore nonpayment notices, assuming issues will resolve independently, which allows Colorado Department of Revenue payroll penalties and interest to accumulate and may trigger escalated enforcement action. Sending payment without a clear explanation of what it covers can result in misapplication to the wrong obligation or period.

Filing new wage withholding returns without addressing outstanding nonpayment does not automatically resolve prior debts, as the state tracks unpaid amounts separately. Missing the deadline stated in the notice without contacting the state first allows collection actions to proceed, even when full payment cannot be made immediately.

Protest and Appeal Rights

Employers who receive a notice of deficiency may submit a written protest and request a hearing to dispute the notice. Any protest or request for hearing must be submitted within thirty days of the date of the notice and must contain the employer’s name, address, account number, the tax periods involved, the type and amount of tax in dispute, and a summary statement of the findings with which the employer does not agree.

Facing State Enforcement or Payroll Tax Issues?

If you’ve received a state tax notice and aren’t sure how to respond, we can help you review your options and next steps.