What is DR 0004?

Business owners in Colorado received an email Wednesday advertising the new DR 0004 form. What is DR0004? TLDR, it is a complex payroll tax election that is not necessary for most of your employees. Read on to find out when DR 0004 would be useful.

What is DR 0004?

DR 0004 is a form to calculate withholding allowances for State of Colorado personal income tax. It’s like a W-4 form, which is used by the federal government for the same purpose. For the most part, Colorado workers use the same number of allowances for both the federal and state level. DR 0004 allows a more accurate calculation than simply copying federal allowances.

Why use DR 0004?

Some employees care a lot about how much money is deducted for taxes each pay period. Some prefer a lot of taxes withheld, guaranteeing a big refund in April. Others prefer as few deductions as possible to avoid giving the government a “free loan.”

These employees may be interested in filling out DR 0004 to more accurately calculate their deductions.

There’s a few reasons an employee’s W-4 deductions may not be accurate for Colorado:

  • They earn income from more than one job
  • They expect significant non-wage income
  • They expect significant itemized deductions
  • They expect to claim Colorado child tax credits

If an employee asks to adjust their withholding, you should provide them DR 0004. The employee will return this form and you should enter the results into your payroll system.

What should I do about DR 0004?

As an employer, you should inform your employees they have the option to fill out DR 0004 but it IS NOT REQUIRED. Taxes are confusing to most people, so you should not push this optional form onto employees or imply that it is important they complete the form.

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