Tax Season is nearly upon us! And while our members will soon begin working diligently to file before the April 15th deadline, many members living in Connecticut have the opportunity to take advantage of a tax exemption for the second year.
CSEA’s Retiree Team has been working closely with the Department of Revenue Service and the State Legislature to help answer your questions, despite not being a professional tax preparer ourselves.
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 2017 legislative 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 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% LAST YEAR
2020 28% THIS YEAR
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 28% 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 28% 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?
When filling out your 2020 Form CT-1040, you will enter the amount on Line 48b: 28% of Pension or Annuity Income. If your filing status is single, married filing separately, or head of household with federal AGI for the taxable year of less than $75,000 or married filing jointly with federal AGI of less than $100,000, and you receive income from certain pensions and annuities, such as from a defined benefit plan, 401(k), 403(b) or 457(b) plans, you qualify for this subtraction modification. To determine the amount to enter on this line, begin with the amount reported on federal Form 1040, Line 4d, or federal Form 1040-SR, Line 4d, Taxable amount of pensions and annuities. From the amount on Line 4d, subtract military retirement pay, Tier 1 and Tier 2 railroad retirement benefits, and Connecticut teachers’ retirement pay. Multiply the result by 28%. Enter the amount on this line. Military retirement pay and Tier 1 and Tier 2 railroad retirement benefits are fully exempt from Connecticut income tax, and should not be included in this calculation. The subtraction modification for these benefits are reported on Lines 44 and 43, respectively, on the Connecticut return. Taxpayers who receive income from the Connecticut Teachers’ Retirement Board are already allowed to exempt 25% of that income from Connecticut income tax on Line 45 of the Connecticut return
CSEA does not have tax professionals 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.