| Agency | Colorado Department of Revenue |
|---|---|
| Form or step | Final withholding return (DR 1094), annual reconciliation with W-2s (DR 1093), and a business tax account closure through Revenue Online or the closure form (DR 1108) |
| Timing | Department guidance has pointed sellers to close within about 30 days of the final wages |
Watch for this: A buyer's new company needs its own withholding account. Payroll run under your number after closing stays your problem.
Why the Account Has to Close
Colorado employers withhold state income tax from wages and send it to the Department of Revenue. The account stays open until the employer closes it, and returns keep coming due even when no wages are paid.
In an asset sale the buyer usually hires your staff through a new company with its own federal employer number and its own Colorado withholding account. Your account should end on the date of your last payroll.
Step One: The Final Return
File the withholding return, the DR 1094, for the period that includes your final paychecks, and pay what was withheld. Check the box or note that indicates it is a final return if the form you use offers one.
If your payroll provider files for you, tell them in writing that the business has been sold and give the final pay date. Providers sometimes keep filing zero returns for months.
Step Two: The W-2 Reconciliation
Employers send W-2 information to the state along with an annual reconciliation, the DR 1093. A closing business does this for its final year.
Older Department guidance asked closing employers to file it within 30 days of the closure rather than waiting for the usual January deadline. Confirm the current timing with your CPA.
Your employees also need their W-2s from you for the wages you paid them before closing.
Step Three: Close the Account
The Department lets businesses close tax accounts online through Revenue Online or with its Business Tax Account Closure Form, the DR 1108. Some older publications point to a different form, so use whichever the Department currently lists.
The same request can close your state sales tax account if you hold one. The Colorado Springs city sales tax license is separate and has to be closed with the city. See the Colorado Springs sales tax license page.
What About Unemployment Premiums?
State unemployment insurance is run by the Colorado Department of Labor and Employment, a different agency from the one that handles withholding. Its rules on what passes to the buyer are covered on our page about the Colorado unemployment rate transfer.
Federal Filings Too
The IRS has its own final payroll returns, and your federal employment tax account follows its own closing steps. Most payroll providers handle both, but confirm they know the final date.
Timing Inside the Deal
Buyers want payroll taxes current at closing. Many purchase agreements include a promise from the seller to file all final returns and pay any tax owed. A clean Colorado tax status letter before closing helps prove it.
Plan the last payroll carefully. If your final pay date falls after closing, decide who funds it and which account it runs through.
Sources and Next Steps
The Department of Revenue's withholding tax guide and the guidance payroll companies publish on state final filings describe these steps. This is general information, not tax or legal advice, so confirm your situation with your CPA or attorney.
For the bigger picture, see getting your books ready for a business sale.