Arizona vs Colorado: Taxes & Take-Home Pay 2026

Two flat taxes with a big gap

Arizona's 2.5% rate is the lowest flat rate of any state that taxes wages. Colorado's flat rate is 4.4%. Both start from deductions close to the federal standard deduction, so the rate difference carries straight through to take-home pay. Colorado also has a paid family leave premium on wages, and Arizona does not.

People compare these two states when moving between Phoenix or Tucson and Denver or Colorado Springs, and retirees often weigh Arizona winters against Colorado summers.

Worked example at $90,000

A single filer earning $90,000 pays $1,856 in Arizona income tax. In Colorado the same filer pays $3,252 in income tax and $396 in FAMLI premiums at 0.44%. A Denver worker also pays the occupational privilege tax of $5.75 a month, $69 a year. All in, Colorado costs about $1,860 more.

For a married couple with two children earning $160,000, Arizona tax is $2,963 and Colorado tax plus FAMLI is $6,327.

Deductions and credits that differ

Arizona and Colorado define taxable income in different ways, so the same household can have different deductions in each state.

• Arizona sets its own standard deduction: $15,750 single, $31,500 joint under HB 4168. Filers who take it can raise it by charitable gifts, up to $1,000 ($2,000 joint).
• Colorado starts from federal taxable income, so the federal $16,100 single deduction flows through. Colorado makes high earners add back part of their federal deductions and does not follow some federal deductions.
• Arizona's dependent credit rises to $125 per child under 17 from 2026. Arizona also lets you subtract qualified tips and overtime, matching the federal deductions.
• Colorado's TABOR amendment can trigger temporary rate cuts or refunds in years when revenue exceeds its limit. These are not included in the figures above.

Sales tax: Colorado is low at the state level, high locally

Colorado's state sales tax is only 2.9%, but local add-ons average 4.99%, for a combined 7.89%. Some areas reach 12%. Arizona's transaction privilege tax is 5.6% at the state level, with an average combined rate of 8.54%. Arizona is slightly higher on average, but the gap is much smaller than the income tax gap.

Retirement income

Arizona subtracts all Social Security included in federal income, all military retirement pay, and up to $2,500 of pensions from the federal civil service retirement fund and Arizona's state and public safety retirement systems. Each filer aged 65 or older also gets a $2,100 exemption. Other pensions and IRA withdrawals are taxed at 2.5%.

Colorado taxes retirement income at 4.4%, but its subtraction is much larger. Per the Colorado Department of Revenue, filers aged 55 to 64 can deduct up to $20,000 of pension and annuity income and those 65 or older up to $24,000, and Colorado counts Social Security as pension income for this purpose. Filers 65 or older, and those aged 55 to 64 with AGI of no more than $75,000 (single) or $95,000 (joint), can instead deduct all of their federally taxable Social Security if that is larger.

Take a single 67-year-old whose only income is $24,000 from a private pension. Colorado's subtraction removes all of it, so Colorado tax is zero. In Arizona, after the $15,750 standard deduction and the $2,100 age exemption, tax is about $154. As pension income grows, Colorado's higher rate catches up. Using the base federal standard deduction and ignoring the age extras on both sides, the crossover for a single filer is roughly $72,000. Arizona's age exemption pulls it lower, and the extra federal deductions for people 65 and over, which flow into Colorado taxable income, push it higher. Above the crossover, Arizona's lower rate wins.

Moving and remote work

Colorado part-year residents file a Colorado part-year return that prorates tax by the share of income that is Colorado-source or received while a resident. Arizona part-year residents use Arizona's part-year return and pay tax only on income received while living there plus Arizona-source income. Arizona employers withhold on pay for services performed in Arizona. A remote worker who moves to Colorado but keeps an Arizona employer should switch withholding to Colorado from the move date.