You have to add moisture to tint and color powdered sugar evenly. Powdered sugar comprises about 3 percent corn starch by volume, which keeps it loose and flowing. However, corn starch also absorbs moisture and gelatinizes, so you need a liquid carrier -- milk, water or lemon juice -- to disperse liquid food coloring evenly throughout the sugar. Colored powdered sugar works well in dessert glazes -- corn starch is also a clear thickening agent -- and icings, where it mixes readily with butter and other fats.
Add the powdered sugar to a mixing bowl. Add just enough liquid to form a thick paste, or about 1 teaspoon per 3/4 cup.
Use water or lemon juice if you're using the powdered sugar for a glaze; use milk if you're using the sugar in frosting.
Spread the paste in an even layer in the mixing bowl using a silicone spatula. Add about 1 drop of food coloring per cup of powdered sugar.
Work the food coloring into the sugar using the spatula until uniformly combined. Add more food coloring, a drop at a time, until it reaches the desired intensity.
Transfer the colored powdered sugar to an airtight storage container and keep it in the refrigerator until ready to use. Stir the powdered sugar right before using it or adding it to a recipe.