Connecticut Lawmakers Weigh Tax Relief for Middle Income Earners

by Christian Wade

 

Connecticut lawmakers are looking to provide more relief for middle-income pensioners as part of a broader tax package working its way through the legislative process. 

The proposal, which is being considered by the Legislature’s Finance, Revenue and Bonding Committee this week, would exempt more middle-income retirees in Connecticut from paying state taxes on earnings from pensions and annuities. 

Under current law, the state exempts retirement income from the state tax for retirees who earn less than $100,000 for couples and $75,000 for other taxpayers.

But retirees whose income exceeds those limits — even by one dollar — still must pay income tax on the entirety of their pensions, 401ks and IRAs.

The proposal, if approved, would gradually increase the taxes owed on retirement income up to a threshold of $100,000 for singles and $150,000 for couples.

“We often hear from our members and your constituents that earning one more dollar of income should not force Connecticut’s retirees to pay taxes on the entirety of their hard-earned retirement benefits,” John Erlingheuser, senior director of advocacy and community outreach at AARP Connecticut, said in recent testimony on the bill.

He said retirees in Connecticut have “limited options” for rejoining the workforce and “virtually no time horizon for increasing their savings.”

“Particularly in the face of recent inflation, increasing these thresholds is a necessity,” Erlingheuser said. “The reality for many retirees is that a fixed income is no longer a fixed income–it is a shrinking income to pay for essentials like prescription medications, food, and utility bills.”

The proposal to exempt more retirement income from state taxes is part of a broader tax relief measure that would also increase the state’s earned income tax credit to 40% of the federal credit.

Connecticut has taken steps in recent years to make the state more attractive to retirees concerned that the high cost of living is driving them elsewhere.

The state exempts Social Security for single filers with incomes less than $75,000 and joint filers with less than $100,000. Taxpayers with higher incomes qualify for a 75% exemption. It also exempts 50% of pension earnings for retired teachers and 100% of military retirement pay from state income taxes.

Lawmakers are also considering a proposal that would exempt all pension and annuity funds from taxation, regardless of income levels. But that bill has stalled.

A fiscal note attached to the bill estimated that exempting all pension and annuity earnings from income taxes would cost the state about $200 million annually.

But Michael Barry, coordinator for the Connecticut Coalition for Retirement Security, said additional relief for seniors will mean more money for the state, citing statistics showing that every dollar paid out in pension benefits supports $1.25 of spending in Connecticut’s economy.

“Not because we want to, but because we have to,” he said in testimony. “We are the sandwich generation, and we are taking care of children, our parents and oftentimes our grandchildren.”

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Christian Wade is a contributor to The Center Square. 

 

 

 

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