With tax time right around the corner I thought this would be a good time to review the Legislation that Connecticut passed in 2017 and implemented in 2019. I’m referring to the Retiree Income Tax Exemptions. This legislation only covers Connecticut residents who file their Connecticut State Income Taxes and pertains to Pension and Annuity Income and Social Security benefits. There are, however, income limits for the exemptions to apply.
Pensions and Annuity Income
Connecticut has historically fully taxed pension and annuity income. That all changed in 2019 for those whose Federal AGI is below $75,000 for single filers ($100,000 for joint filers). Retired Connecticut residents are now able to deduct a percentage of their pension and annuity income when calculating their State Adjusted Gross Income.
If your Federal AGI is at or above these thresholds (either as a single or joint filer) you will not be eligible for any exemption.
Under the 2017 law, the income tax on pension and annuity income for taxpayers with AGIs below the above thresholds phases out over six years, from 2019 to 2025. As of 2025 these incomes will be 100% deductible.
The following table outlines the next few years and the deductions that will apply.
Pension and Annuity Income Tax for Retirees with Certain AGI Levels, 2019-2025
Social Security Income
The next area of change deals with Connecticut state taxation on Social Security Income.
Connecticut exempts from its income tax (1) Social Security income the federal government exempts from the federal income tax and (2) depending on a taxpayer’s filing status and federal adjusted gross income (AGI), some or all of the Social Security income the federal government taxes.
Prior to 2019 the income thresholds for a full exemption were Federal AGI under $50,000 for single filers and Federal AGI under $60,000 for Joint filers. The 2017 law implemented in 2019 raised these thresholds to under $75,000 for single filers and under $100,000 for Joint Filers. So retirees who fall into this income category are now fully exempt from state income tax on their Social Security Income.
If your Federal Adjusted Gross Income is above the threshold for your filing status your Social Security benefits are partially exempt from Connecticut Income Tax.
This is all good news for some Connecticut Retirees. Connecticut though continues to be 1 of 13 states that tax Social Security benefits for some retirees. While not all states tax the same. If your curious which other states tax Social Security they are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia*.
*West Virginia will be coming off this list as of 2022
Please consult a tax professional regarding your individual situation.