State-by-State Guide to Taxes on Retirees - Connecticut
Tool | November 2019

State-by-State Guide to Taxes on Retirees

Connecticut

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The Bottom Line
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Least Tax-Friendly

The Constitution State is a tax nightmare for many retirees...but at least things are improving on the income tax front. For residents with federal adjusted gross income over $75,000 ($100,000 for joint filers), 25% of Social Security benefits taxed at the federal level are taxed by Connecticut. (Social Security payments are exempt for taxpayers below those income levels.) Starting in 2019, 14% of income from a pension or annuity is exempt for taxpayers with less than $75,000 of federal AGI (less than $100,000 for joint filers). The exemption percentage is increased 14% each year after 2019 until it reaches 100% for the 2025 tax year. Military pensions are also excluded from state taxes.

Connecticut has the fourth-highest property taxes in the U.S., so the $10,000 cap on the federal tax deduction for state and local taxes stings a bit more here. The state offers property tax credits to homeowners who are at least 65 years old and meet income restrictions.

There are no local sales taxes in Connecticut, so you’ll pay only the statewide rate of 6.35% on everyday purchases. Luxury goods and most motor vehicles costing $50,000 or more are taxed at 7.75%.

Connecticut imposes an estate tax on estates valued at $3.6 million or more at progressive rates ranging from 7.2% to 12%. Connecticut is also the only state with a gift tax, which applies to real and tangible personal property in Connecticut and intangible personal property anywhere for permanent residents. Only the amount given since 2005 and over $3.6 million is taxed. Gift tax rates start at 7.8% and go up to 12%.

State Sales Tax

The state taxes most items at 6.35%, but localities are not allowed to add to that. Jewelry valued at more than $5,000 and clothing, footwear and accessories priced at more than $1,000 per item are taxable at 7.75%.

Income Tax Range

Low: 3% (on up to $20,000 of taxable income for married joint filers and up to $10,000 for those filing individually)

High: 6.99% (on the amount over $1 million for married joint filers and over $500,000 for those filing individually)

Social Security

Social Security income is fully exempt for single taxpayers with federal adjusted gross income of less than $75,000 and for married taxpayers filing jointly with federal AGI of less than $100,000. Taxpayers who exceeding these thresholds can still deduct 75% of their federally taxable Social Security benefits on their Connecticut tax return.

Exemptions for Other Retirement Income

Starting in 2019, 14% of income from a pension or annuity is exempt for joint filers with less than $100,000 of federal adjusted gross income and other taxpayers with less than $75,000 of federal AGI. The exemption percentage is increased 14% each year after 2019 until it reaches 100% for the 2025 tax year.

To the extent it's included in federal AGI, 25% of income from the Connecticut teacher’s retirement system is exempt. Teachers can claim this tax break or the 14% pension exemption, but not both.

Military pensions and Railroad Retirement benefits are fully exempt.

Property Taxes

In Connecticut, residents pay an average of $2,114 in taxes per $100,000 of assessed home value.

Tax breaks for seniors: Connecticut offers property tax credits to homeowners who are at least 65 years old and meet income restrictions. Income ceilings are $43,900 for married couples (with a maximum benefit of $1,250) and $36,000 for singles (with a maximum benefit of $1,000). Renters under those income ceilings may qualify for a rebate. Municipalities may provide additional tax relief for seniors.

Vehicle Taxes

Sales tax is due at purchase: 6.35% for vehicles under $50,000; 7.75% for those over. In addition, vehicles are subject to an stiff annual levy, whether or not they’re registered for use. The rates are set by individual municipalities. Legislation implemented in 2016 lowered the cap on these levies. For example, the owner of a $20,000 vehicle who lived in Hartford would pay $1,366 annually.

Inheritance and Estate Taxes

Estates valued over $3.6 million (in 2019) are subject to estate tax.Rates range from 7.2% to 12%. Connecticut is the only state with a gift tax on assets you give away while alive. The state’s tax law requires that you file Connecticut gift tax returns every year to identify such gifts; however, taxes (at rates ranging from 7.2% to 12%) are due only when the aggregate value of gifts made to any individual since 2005 exceeds $2 million.

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