Colorado Severance — HCW Non-Compete Limits ($130,014), 4.40% Tax, 2026

Colorado WARN: what applies#

Colorado has no state mini-WARN statute. The operative layoff-notice regime for private Colorado employers is federal WARN (29 U.S.C. §§ 2101–2109): employers with 100 or more full-time employees must give 60 days advance written notice for a mass layoff (50 or more affected at a single site of employment that constitutes at least 33% of the active workforce, or 500 or more regardless of percentage) or a plant closing. Notice must go to affected employees (or their representatives), the state dislocated-worker unit (in Colorado, the CDLE Rapid Response unit), and the chief elected official of the local government. Liability for non-compliance is back pay and benefits for each day notice was not given, up to 60 days, plus a civil penalty of up to $500 per day payable to the local government. Colorado has no additional state-law notice requirement, no statutory severance mandate, and no lower employer-size threshold; CDLE Rapid Response coordinates voluntary outreach to laid-off workers but does not enforce a state notice obligation.

How severance is taxed in Colorado#

Colorado has a flat statutory income-tax rate of 4.40% for 2026, applied to all wages including severance treated as supplemental wages. The Colorado Department of Revenue does not publish a separate supplemental withholding rate — employers compute taxable wages on Form DR 0004 (Colorado Employee Withholding Certificate) or the federal Form W-4 and apply 4.40% per the 2026 DR 1098 (Rev. 10/21/25). On top of Colorado withholding, severance is subject to the federal 22% supplemental rate (37% on cumulative amounts above $1,000,000 in a calendar year) and FICA (Social Security 6.2% up to the wage base, Medicare 1.45% plus 0.9% additional Medicare above $200,000 single / $250,000 MFJ). Note that TABOR (Colo. Const. art. X § 20) refunds of surplus state revenue are settled at filing on Form DR 0104, not via reduced withholding, so the effective state rate after refund may be lower than 4.40% in years with surplus.

Calculate your situation#

Inputs default to Colorado; adjust to your specifics.

FAQ#

Does Colorado require severance pay?

No Colorado statute requires private employers to pay severance. Colorado has no mini-WARN that would mandate pay-in-lieu of notice, and CDLE confirms severance is at the employer's discretion unless required by an employment contract, established company policy, or collective bargaining agreement. The only layoff-notice regime that carries teeth in Colorado is federal WARN (29 U.S.C. §§ 2101–2109), which requires 60 days notice (or back pay for missed days) at employers of 100+ for covered mass layoffs and plant closings.

How is severance taxed in Colorado?

Colorado withholds at a flat 4.40% on all wages, including severance treated as supplemental wages, per the 2026 DR 1098 (Rev. 10/21/25). There is no separate supplemental rate in Colorado — the same 4.40% applies to bonuses, severance, and regular pay. On top of that you owe federal supplemental withholding of 22% (37% on cumulative amounts above $1,000,000 in a calendar year) plus FICA (Social Security 6.2% up to the wage base, Medicare 1.45% plus 0.9% additional Medicare on wages above $200,000 single or $250,000 married filing jointly). State income tax is reconciled on your Colorado return (Form DR 0104). Note: Colorado's TABOR (Taxpayer's Bill of Rights) provision may produce a refund of surplus state revenue in years it is triggered — reconciled at filing, not at withholding — so the effective rate after refund can be lower than 4.40%.

Does Colorado have a mini-WARN?

No. Unlike California, New York, New Jersey, or Illinois, Colorado has no state-law mini-WARN. The operative regime is federal WARN (29 U.S.C. §§ 2101–2109): employers with 100 or more full-time employees must give 60 days advance written notice for a mass layoff (50+ affected at a single site of employment that constitutes at least 33% of the active workforce, or 500+ regardless of percentage) or a plant closing. Notice goes to affected employees, the CDLE Rapid Response unit, and the chief elected local official. Failure to comply triggers back pay and benefits for the period notice was not given (up to 60 days), plus a $500/day civil penalty to the local government. Colorado adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

Can I collect Colorado unemployment while receiving severance?

Possibly delayed, not eliminated. CDLE treats severance pay as wages for unemployment-insurance purposes, which means a lump-sum or installment severance can postpone the start of benefit eligibility for the weeks the severance is allocated to. For example, if you receive eight weeks of severance pay after separation, your UI benefits typically do not begin until that eight-week period ends. ALL separation-related income — severance, accrued vacation, sick pay, bonuses, pay-in-lieu — must be reported when you file your initial claim and on weekly certifications, and CDLE makes the eligibility determination. Importantly, you cannot waive your right to unemployment benefits in a severance agreement; any clause attempting to bar you from filing for UI is unenforceable under Colorado law. File your claim through MyUI+ at cdle.colorado.gov as soon as you separate.

Are non-competes enforceable in Colorado after a layoff?

Only in narrow circumstances. C.R.S. § 8-2-113, as comprehensively overhauled by HB22-1317 (effective August 10, 2022) and further amended by SB 25-083 (effective August 6, 2025), voids most post-employment non-competes unless ALL of three conditions are met: (1) the worker earns annualized cash compensation at or above the CDLE-set highly-compensated-worker (HCW) threshold both when the agreement is signed AND when it is enforced — the 2026 threshold is $130,014 per 7 CCR 1103-14 (CDLE PAY CALC Order); (2) the covenant is for the protection of trade secrets and is no broader than reasonably necessary to protect that interest; AND (3) the employer gave the statutory pre-hire notice (clear-and-conspicuous, in the worker's language, separately signed) before the worker accepted the offer or 14 days before the restriction took effect for current workers. Customer non-solicitation covenants follow a parallel rule with a 60%-of-HCW threshold ($78,008.40 for 2026). Non-competes against physicians, advanced practice registered nurses, certified midwives, and dentists are now categorically void under SB 25-083. An employer that enters into, presents, or attempts to enforce a void non-compete faces a $5,000 per-worker penalty, injunctive relief, and actual damages. Practical implication for severance: if your earnings are below the threshold or your employer failed the notice requirement, the underlying non-compete is already void — any "non-compete release" your severance offer purports to give in exchange for signing is releasing nothing real, so you can negotiate that consideration away.

What other Colorado laws affect a severance package?

Three are worth knowing about. (1) The Colorado POWR Act (Protecting Opportunities and Workers' Rights Act), effective August 7, 2023, broadened the Colorado Anti-Discrimination Act (C.R.S. § 24-34-401 et seq.) — lowered the harassment threshold from "severe or pervasive" to a "petty slights" exclusion, extended protections to "marital status," and tightened the use of non-disclosure provisions in settlement and separation agreements (an NDA covering discrimination/harassment claims is unenforceable unless it meets specific worker-protective requirements, including a mutuality clause and a $5,000 employer penalty for breach). Verify any NDA in your severance agreement against the POWR Act standards. (2) The Colorado Wage Act (C.R.S. § 8-4-101 et seq.) requires that all earned, vested, and determinable wages — including accrued PTO if the company pays out PTO — be paid on the day of termination if the employer initiates separation (or by the next regular payday if the worker resigns); severance itself is not "wages" for this purpose unless your contract or plan makes it so. (3) OWBPA is federal and applies in Colorado: if you are age 40 or older and asked to waive age-discrimination claims, you get 21 days to consider (45 for group exits) and 7 days after signing to revoke.