Comparison•2025 Tax Year•Last verified: January 2026
Colorado vs Arizona: Side Hustle Tax Comparison 2025
Compare Colorado and Arizona taxes for freelancers and gig workers. Colorado has a flat 4.4% while Arizona has a flat 2.5% - see which is better for your side hustle.
Colorado and Arizona are both popular destinations for people leaving high-tax California, offering lower taxes, sunshine, and growing economies. Both states have flat income tax rates—Colorado at 4.4% and Arizona at 2.5%—making the comparison straightforward.
For side hustlers choosing between Denver/Boulder and Phoenix/Scottsdale, Arizona offers nearly 2% more in tax savings. But Colorado's mountain lifestyle and different economy may justify the premium for some.
**Why This Comparison Matters:**
Both states attract the same California migrants:
- **Both have flat taxes**: Simple comparison—4.4% vs 2.5%
- **Both are growing**: Among the fastest-growing states
- **Different climates**: Colorado has mountains and snow; Arizona is desert
- **Tech presence**: Both have growing tech scenes (Denver, Phoenix)
- **California refugees**: Both are top destinations for CA migrants
For side hustlers, Arizona saves nearly 2% on all income—roughly $380 per $20,000 of side hustle earnings.
Side-by-Side Tax Comparison
| Metric | Colorado | Arizona |
|---|---|---|
| State Income Tax Rate | 4.4% (flat) | 2.5% (flat) |
| Tax Difference | +1.9% | Base |
| Federal SE Tax | 15.3% | 15.3% |
| Est. Tax on $20K Side Hustle* | ~$8,106 | ~$7,726 |
| Annual Savings (AZ vs CO)* | — | ~$380 |
| Property Tax (Avg Rate) | 0.51% | 0.62% |
| Sales Tax (State + Avg Local) | 7.77% | 8.40% |
| Climate | Four seasons, snow | Desert, hot summers |
*Assumes single filer with $60,000 W-2 income + $15,000 net side hustle income. Actual taxes vary based on deductions, filing status, and total income.
Colorado Analysis
**Colorado Tax Analysis for Side Hustlers**
Colorado has a flat 4.4% income tax rate—higher than Arizona but still competitive nationally.
**Key Colorado Tax Facts (2025):**
- **State Income Tax**: 4.4% flat rate
- **Tax Type**: Flat (same rate for all income)
- **No Local Income Tax**: CO cities don't add income tax
- **Property Tax**: Very low (0.51% avg)
- **Filing**: Simple with flat rate
**Example**: If you earn $65,000 from your W-2 job and $20,000 from side hustle income (net of expenses) in Colorado:
- Federal SE Tax: ~$2,826
- Federal Income Tax on side income: ~$4,400
- Colorado State Tax: ~$880
- **Total Tax on Side Hustle: ~$8,106** (40.5% effective rate)
Colorado offers world-class skiing and outdoor recreation, a growing tech scene in Denver/Boulder, and four distinct seasons.
Arizona Analysis
**Arizona Tax Analysis for Side Hustlers**
Arizona has a flat 2.5% income tax rate—one of the lowest in the nation.
**Key Arizona Tax Facts (2025):**
- **State Income Tax**: 2.5% flat rate
- **Tax Type**: Flat (same rate for all income)
- **No Local Income Tax**: AZ cities don't add income tax
- **Property Tax**: Low (0.62% avg)
- **Filing**: Simple with flat rate
**Example**: Same scenario—$65,000 W-2 job and $20,000 from side hustle income (net of expenses) in Arizona:
- Federal SE Tax: ~$2,826
- Federal Income Tax on side income: ~$4,400
- Arizona State Tax: ~$500
- **Total Tax on Side Hustle: ~$7,726** (38.6% effective rate)
**Arizona saves: ~$380/year** on $20,000 of side hustle income.
Arizona offers year-round warm weather, a growing Phoenix tech scene, and significantly lower income taxes than Colorado.
Calculate Your Side Hustle Taxes
Use our calculator to see exactly what you'd owe in each state. Try entering your numbers, then switch between Colorado and Arizona to compare.
Which State Is Right for Your Side Hustle?
**Colorado May Be Better If You:**
- Value mountain lifestyle (skiing, hiking, climbing)
- Want four distinct seasons
- Prefer Denver/Boulder's culture and tech scene
- Like the idea of winter activities
- Don't mind paying 1.9% more for the lifestyle
**Arizona May Be Better If You:**
- Want to maximize income with lower taxes
- Prefer year-round warm weather
- Don't need mountains or snow
- Are drawn to Phoenix's growing economy
- Prioritize tax savings over lifestyle amenities
**Important Considerations:**
1. **The difference is meaningful but not huge**: At 1.9%, Arizona saves $380 on $20K of side hustle income, or $950 on $50K. Meaningful, but unlikely to drive a relocation decision alone.
2. **Property taxes favor Colorado slightly**: Colorado's 0.51% average beats Arizona's 0.62%. On a $400K home, that's ~$440/year difference, partially offsetting income tax savings.
3. **Climate is the real differentiator**: Colorado offers skiing, fall colors, and four seasons. Arizona offers escape from winter, desert landscapes, and extreme summer heat. This is often the deciding factor.
4. **Water concerns**: Arizona faces more severe long-term water challenges. Colorado has concerns too, but less acute.
5. **Tech ecosystems**: Denver is generally considered the stronger tech hub currently, but Phoenix is growing rapidly (semiconductor fabs, fintech).
Frequently Asked Questions
Is Arizona's lower tax rate worth moving from Colorado?
Purely for taxes, probably not—the 1.9% difference saves roughly $400-1,000/year for typical side hustlers. The decision usually comes down to lifestyle: do you prefer mountains and snow (Colorado) or desert and sunshine (Arizona)? If you're indifferent on lifestyle, Arizona's lower taxes tip the scales.
Which state has the better tech scene for freelancers?
Denver/Boulder is generally considered the stronger tech ecosystem currently, with established companies and startup activity. Phoenix is growing rapidly, especially in fintech and semiconductors (TSMC fab). Both are viable for tech freelancers, and remote work makes the local scene less critical.
How do the summers compare between Colorado and Arizona?
Arizona summers are extreme—Phoenix regularly hits 110-115°F, though it's dry heat. Colorado summers are milder (80s-90s in Denver) with cooler mountain escapes nearby. If you struggle with extreme heat, Colorado is more comfortable. If you hate cold winters, Arizona wins.
Related Comparisons
Sources
- • Colorado Department of Revenue - 2025 Tax Rates
- • Arizona Department of Revenue - 2025 Tax Rates
- • Tax Foundation - State Tax Data 2025
- • IRS Publication 334 - Tax Guide for Small Business