Summary: In 2019, the taxable wage base in Colorado was $13,100. By 2026 that wage base is set to increase to $30,600 and then be indexed to inflation.
The taxable wage base is an important component in unemployment insurance calculations. It refers to the maximum annual amount of wages from each employee on which an employer must pay unemployment taxes. Different states set different taxable wage base amounts based on their economic needs, labor market conditions, and unemployment insurance fund balances.
In 2019, the taxable wage base in Colorado stood at $13,100. This means that employers were required to pay state unemployment insurance taxes only on the first $13,100 earned by each employee during that year. However, with changing economic conditions and the need to maintain a healthy state unemployment insurance fund, the taxable wage base in Colorado was adjusted.
Colorado’s SB 20-207, passed in 2022, was an effort to make progressive changes to the state’s unemployment insurance system, in light of financial pressures and an evolving job market. This legislation detailed a multi-year plan to raise the taxable wage base incrementally until 2026. This systematic approach allowed employers to anticipate and plan for the yearly increase in their unemployment insurance tax liabilities.
The specific increases set by SB 20-207 were:
- $13,600 for 2021, which is an increase of $500 from the 2019 base.
- $17,000 for 2022, marking a $3,400 increment from the previous year.
- $20,400 for 2023, a step up of $3,400.
- $23,800 for 2024, again rising by $3,400.
- $27,200 for 2025, maintaining the consistent pattern.
- $30,600 for 2026, but with an additional provision. This final figure is subject to adjustments based on fluctuations in the annual average weekly wage. Such adjustments ensure that the wage base remains relevant and in line with wage trends.
Another significant piece of the unemployment insurance puzzle in Colorado is the distribution of tax rate notices. These notices are essential for employers because they outline the specific tax rates that will apply to them in the upcoming year. By distributing these notices by late November 30, Colorado ensures that employers have ample time to make necessary budgetary provisions for the upcoming year’s tax obligations. The rate is based on various factors including an employer’s history of unemployment claims and the health of the state’s unemployment insurance fund.
For more employer details on unemployment in Colorado, click here.
Colorado Nonprofit Employers Have Options
501(c)(3) organizations have a unique position in the tax structure. Unlike many other entities, these nonprofit organizations aren’t mandated to contribute to state unemployment taxes upfront. Instead, their obligation can be solely to reimburse the state for actual unemployment insurance claims connected to their organization.
This special provision for nonprofits offers a more direct approach to unemployment funding. By allowing nonprofits to “opt out” of the standard state unemployment tax system, they can choose to exclusively settle the specific unemployment claims attributed to their operations, effectively paying dollar for dollar for genuine claims only. This system often proves to be more cost-efficient for many nonprofits. On average, by leveraging this option, nonprofits can realize savings ranging from 30% to 60% compared to the standard State Unemployment Insurance (SUI) tax rates. This means that, not only do they have better control over their unemployment-related expenditures, but they also stand to conserve substantial funds which can be redirected towards their core mission and activities.
Colorado nonprofit employers have until December 1 to notify the state of their decision to reimburse rather than pay SUI taxes.
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
