Controlled colloidal levitation is key to many applications. Recently, it was discovered that polymer microspheres were levitated to a few micrometers in aqueous solutions in alternating current (AC) electric fields. A few mechanisms have been proposed to explain this AC levitation such as electrohydrodynamic flows, asymmetric rectified electric fields, and aperiodic electrodiffusiophoresis. Here, we propose an alternative mechanism based on dielectrophoresis in a spatially inhomogeneous electric field gradient extending from the electrode surface micrometers into the bulk. This field gradient is derived from electrode polarization, where counterions accumulate near electrode surfaces. A dielectric microparticle is then levitated from the electrode surface to a height where the dielectrophoretic lift balances gravity. The dielectrophoretic levitation mechanism is supported by two numerical models. One model assumes point dipoles and solves for the Poisson-Nernst-Planck equations, while the second model incorporates a dielectric sphere of a realistic size and permittivity and uses the Maxwell-stress tensor formulation to solve for the electrical body force. In addition to proposing a plausible levitation mechanism, we further demonstrate that AC colloidal levitation can be used to move synthetic microswimmers to controlled heights. This study sheds light on understanding the dynamics of colloidal particles near an electrode and paves the way to using AC levitation to manipulate colloidal particles, active or passive.