CT State Retiree Income Tax Exemption—Your Questions Answered

Tax Season is upon us! And while our members have been working diligently to file before the April 15th deadline, hundreds of members living in Connecticut have been perplexed by the recent changes to retiree income tax exemptions. It has also been brought to our attention that online tax packages and professional tax preparers/ accountants have not received updated forms that account for the exemption.

CSEA’s Retiree Team has been working closely with the Department of Revenue Service, the State Legislature, and our partners at MetLife to ensure our members have answers to important questions, despite not being a professional tax preparer ourselves.

Most recently, I have contacted H&R Block to have them update their forms to ensure that their online tax package is working correctly for eligible members looking to receive the exemption. At this time CSEA has not been able to confirm that any of the other tax packages have been corrected to automatically determine eligibility and apply the exemption, but if you have any issues with H&R Block, please contact either the Software Support Line (1-888-482-9288) or the Online Support Number (1-855-897-8639) for questions.

Please read below for any and all information CSEA has been able to uncover about the Retiree Income Tax Exemption for CT State Income Taxes.

What is the Retiree Income Tax Exemption?

CSEA understands that our retirees are on a fixed budget—and that soaring medical costs paired with the increased cost of living makes handling expenses while aging difficult. During the last legislation session, CSEA advocated for a bill aimed at making that fixed budget a little easier to deal with. The bill increased the threshold for Social Security income exemptions as well as an implemented a new exemption, starting at 14% and increasing progressively until it reaches 100% in 2024, for pension and some annuity income at the same increased threshold. The legislature voted to institute this bill to first be implemented starting with your 2019 tax returns.

The following schedule impacts pension and annuity income for singles and couples with adjusted gross income (AGI) levels of up to $75,000 and $100,000, respectively.

TAX YEAR                % EXEMPTION

2019                                        14%

2020                                        28%

2021                                        42%

2022                                        56%

2023                                        84%

2024                                        100%

The legislation also increases the threshold for 100% exemption for income taxes on Social Security from $50,000 to $75,000 for singles and $60,000 to $100,000 for couples.

What is eligible under the tax exemption?

Social Security income is eligible for at least a 75% exemption (100% depending on your income), and employer-based pensions, and some annuities are eligible for a 14% tax exemption this year (depending on your income) which include: 401(k), 403(b) and Governmental 457(b) plans reported on line 4D on the Federal 1040-form.

Who is eligible for the tax exemption?

First off, this legislation only covers Connecticut residents filing their Connecticut State Income Taxes. Historically, in Connecticut, pension and annuity income was taxed 100% (or with a 0% exemption), however, starting in 2019, for those that have a Federal AGI below $75,000 for single filers ($100,000 for joint filers), retired Connecticut residents will be able to deduct a percentage of their pensions and annuity income when calculating their State AGI. The deduction is 14% for this year and will continue to increase annually until 2025 when it reaches 100% exemption.

If your Federal AGI is at or above this amount (either as a single or joint filer) you will not be eligible for any exemption.

Now, let’s discuss the Social Security portion. Historically, Connecticut exempted income tax from Social Security income that the federal government exempts, as well as some of the Social Security income the federal government taxed for those who had a Federal AGI under $50,000 for single filers and $60,000 for joint filers. For those with Federal AGI’s over these thresholds, Connecticut offered a 75% exemption, rather than the full 100%. Starting in 2019, however, the legislature raised this threshold from $50,000 to $75,000 for single filers and from $60,000 to $100,000 for joint filers.

If your Federal AGI is at or above this amount (either as a single or joint filer) you will still be eligible for a 75% exemption.

Where can I find the exemption on the CT Form-1040?

If you are working with a professional, or filing by yourself, you can find the 14% tax exemption for pension and some annuity income on line 48b of the CT Form-1040 which can be found HERE.

How can I be sure to get the exemption if I’m eligible?

At this time, CSEA has not been able to confirm with any other online tax software providers, other than H&R Block, that they have fixed their tax packages to allow for the inclusion of this tax exemption automatically. We have heard from several members that other tax software packages are not prompting members to subtract the exemption automatically and instead including it under “other subtractions”, thereby not automatically determining eligibility for the exemption and automatically applying it.

If you are using a tax professional, make sure that they have the updated CT Form-1040 from the Department of Revenue Services to ensure you are getting any and all eligible exemptions.

CSEA does not have tax professional on hand, and are therefore unable to advise our members on their individual filing, so if you have specific tax questions you need to consult a tax professional or contact the Department of Revenue Services directly at (860) 297-5962. It is recommended that you call during off-peak hours to minimize your wait time throughout tax season which are Tuesday-Friday from 8:30am-10:00am and 3:00pm-4:30pm, Mondays are their busiest call days.

 

Below is more information from DRS directly.

DRSHandout_March2020

 

Thank you,

 
Drew Phelan

Retiree Organizer

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