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State Tax Primer from A to W: Connecticut

August 12, 2009 · 15 comments

Welcome to my seventh in a series on state taxes! For information about what I’m trying to do, read my introductory bit. Next on the agenda, Connecticut (home of the Connecticut Employment Lawyer Blog).

CONNECTICUT

Population: 3,501,252 (29th)

Capital: Hartford

Largest City: Bridgeport

Gross Domestic Product: $204 billion

GDP per capita: $54,117 (1st!)

2008 election winner: Barack Obama

web site: http://www.ct.gov/

Income Tax

Connecticut does collect personal income tax. Taxes are divided into two tax brackets of 3% and 5%. All wages of a Connecticut resident are subject to the state’s income tax, even when the resident works outside of the state. However, as with many states which have bedroom communities to major metro areas, tax is only collected when it exceeds tax in the other state. Since everyone many high-earning wage earners who live in Connecticut work in New York, those folks pay no income tax on those wages to Connecticut. The income must still be reported on the return, however, in order to receive the credit for taxes paid to New York another state.

Connecticut taxpayers must generally file an income tax return if they lived or worked in Connecticut for part or all of the year. Income thresholds apply, starting at $12,000.

Your filing status for Connecticut purposes is… a great deal different for some taxpayers than their filing status for federal purposes. For most taxpayers, you file the same as you would for federal purposes (single, married filing jointly for federal and Connecticut, married filing separate for federal and Connecticut, or head of household, qualifying widow(er) with dependent). But there’s an additional category for some taxpayers: married filing jointly in Connecticut only.

The latter status (married filing jointly in Connecticut only) is a nod to individuals who are parties to a civil union recognized under Connecticut law. Same sex marriages and civil unions are recognized in Connecticut but not for federal purposes.

Pension and annuity benefits received by Connecticut residents are subject to Connecticut income tax to the extent that these benefits are includable for federal income tax purposes. This applies even if the pension is paid by an out of state employer.

Since military is huge in Connecticut (I should know, as my brother is stationed there), there are special rules for military personnel. Here’s the most important rule: if you weren’t domiciled in Connecticut before you entered the military and you were later assigned to active duty in Connecticut, you do not become a Connecticut resident just because you live there now. If your home of record is in another state, you are a nonresident and your military pay is not subject to Connecticut income tax.

Connecticut does participate in the Treasury Set Off program. A Connecticut state tax refund will be taken to satisfy any outstanding liabilities owed to Connecticut or to the Internal Revenue Service; a federal refund will be taken for same.

Like Colorado, Connecticut makes it easy to designate your refund to charity. For 2008, the check off options were:

  • AIDS Research

  • Organ Transplant
  • Endangered Species/Wildlife
  • Breast Cancer Research
  • Safety Net Services
  • Military Family Relief Fund

Sales Tax.

Connecticut levies a 6% state sales tax on the retail sale, lease, or rental of most goods. Food for consumption, medical goods and services and clothing under $50 – the usual suspects – are exempt. Some interesting exemptions include college textbooks, compact fluorescent lights and rare coins.

There are two additional exceptions:

  1. The sales tax rate for the sale of computer and data processing services is 1%.

  2. The sales tax rate is 4½% on the sale of a motor vehicle to a nonresident member, or a member and his or her spouse jointly, of the armed forces of the United States stationed on full-time active duty in Connecticut.

There are no separately collected local or municipal sales taxes.

Tobacco Tax

Connecticut’s cigarette tax is $2.00 per pack pack, which ties it for the 6th highest rate in the country. The national average now stands at $1.23.

Gas Tax

The gas tax rate in Connecticut is $.364 per gallon, making it the 3rd most expensive state in which to buy gas – just behind New York and California.

Property Taxes

Connecticut does impose taxes on real property based on the assessed value of the property. Property tax calculations are determined using 70% of the assessed value.

As you would expect so close to New York, Connecticut property tax collections are quite high. In 2006, Connecticut ranked second in property collections per capita and per household; only New Jersey is higher (also close to New York… Hmm….).

Inheritance and Estate Tax

As you might expect in a state with wealthy residents, Connecticut imposes an estate tax. The tax is on the transfer of estates valued at $2 million or more beginning at 5% of the first $100,000 and increasing to 16% for estates over $10 million.

Overall Tax Burden

The overall tax burden in Connecticut, taking into account taxes paid by individuals, results in a ranking as 3rd most-tax burdened state in the country, according to Tax Foundation. That sounds high but it’s an improvement over 1998 when it was ranked 1st.

taxgirl says

Connecticut is a bit eclectic. And I don’t just say that because they are represented by Democrat Republican? Independent Senator Joe Lieberman.

I say it more because of the incredible disparity in income in the state (much like another high tax state, New Jersey). The city of New Canaan has one of the highest per capita incomes in America with a per capita income of $85,459 while the capital, Hartford is one of the ten cities with the lowest per capita incomes in America ($13,428).

The individual income tax rate is actual relatively low and, in a state with such varied incomes, you would expect a two-tiered system.

The lion’s share of Connecticut’s tax burden comes in the form of extremely high property taxes per capita. I suspect the “per capita” bit is attributable to the high priced housing near the New York state line. Property taxes account for, on average, nearly 40% of the Connecticut taxpayer’s tax burden.

Gas taxes are also pricey. Not surprising since taxes in New York are so high. It may be a case of keeping up with the New York Joneses (not to be confused with Jones New York).

With respect to American Recovery and Reinvestment Act (Recovery Act) dollars, Connecticut is near the top of the pack in terms of funding allocations. The state is slated to receive more than $2.6 million from ARRA with the biggest chunk going to the Department of Education.

While the tax burden is heavy, it doesn’t seem to be driving folks away from the state. I suspect a healthy military and student population has contributed to the overall economy of Connecticut – as well as high dollar jobs in Manhattan.

(Note: tax rates were current as of 08-12-2009 and were taken from the CT Department of Revenue Services)

{ 11 comments… read them below or add one }

1 missgiftsphilippines August 13, 2009 at 3:16 am

Wow, this is really helpful stuff, especially for people who just became citizens of the USA.

2 Susan August 13, 2009 at 10:21 am

Just wanted to alert you of a typo. In one of your paragraphs, you said “Your filing status for Colorado purposes is” — you meant CT, I’m sure. Anyway, just so you know.

I’m a bit surprised CT is #3 in the country. I lived in CT before moving to CA, and the income taxes I have to pay are many multiples higher on essentially equivalent pay. I guess maybe the overall tax burden is about the same if you own a house, but if you’re a renter, CT is definitely better for you.

3 Kelly August 13, 2009 at 10:40 am

Thanks, I fixed it. The feeds and emails went out with the error but I fixed it on the blog. That’s what I get for doing it that close to midnight last night – in the midst of a very exciting Phillies game!

4 Wendi August 14, 2009 at 10:46 pm

I have to tell you, coming from NY (metro NYC area) and now living in CT (just over the border), I giggled at your subtleties. I didn’t think laughter was possible when reading a tax blog. Also, I thought CT was the 6th most expensive state in which to buy gas, behind HI, AK, CA, WA, and NY. Which is ironic in it’s own sense, because gas is 30+ cents higher just over the border in NY… goes to show just how big NY is.

5 mlgreen8753 September 1, 2009 at 3:33 pm

Glad to see breast cancer research is one of the applicable charitable organizations for donating tax refunds. It’s a field that needs all the support it can get. I recently heard about a new breast cancer research that targets a molecule found only on cancer cells and is intended to help the immune system battle these specific cells.

6 Tim October 28, 2009 at 7:00 pm

I think connecticut created a new tax bracket for individuals making over 500k (6.5%), married filling seperately making over 500k (6.5%), head of household making over 800k (6.5%) and married filling jointly over 1 million (6.5%).

http://www.ct.gov/drs/cwp/view.asp?A=1514&Q=448902

7 George October 30, 2009 at 7:15 pm

Most folks do not realize it, but Connecticut taxes all charitable giving. CT income tax is based on an individual’s Federal adjusted gross income (from federal Form 1040, Line 36; Form 1040A, Line 21; Form 1040EZ, Line 4; or federal Telefile, Line I). That figure is before all deductions, including charitable giving deductions. The only allowable deduction from CT income tax is for personal property taxes.

By the way, personal property taxes paid in CT are also taxed. Yes, that is correct! CT residents pay income tax on the money they use to pay their personal property tax, and are thus taxed on their taxes. The maximum deduction for personal property tax is $350. So, if you pay a combined personal property tax (vehicles and residences) of say $4,800, you may deduct $350 from your CT State income tax, meaning that you pay income tax on $4,450 of you personal property tax.

So, be warned. CT residents pay income taxes on their charity giving as well as on their taxes!

8 Ramon Ramos January 15, 2010 at 10:40 am

Hello there Miss Tax girl.
My daughter has been incarcerated for two years now and I have been sending her at least $50.00 or more sometimes at least weekly .My question is ,….can I put a claim on that gifts I sent her on my tax when I file ?

9 Jessica February 22, 2010 at 5:28 pm

Thanks for this! I was just trying to figure out whether to file a state tax return with CT. I own a house in CT, but it is nothing but a money suck. It’s rented, but the people almost never pay the rent on time or in full. I know they didn’t pay me $12,000 in 2009, and even if they did, what they paid did not exceed our expenses (the mortgage, property taxes, insurance, and maintenance of the property). Plus, my husband’s and my income from our jobs are more than what they paid.

So it looks like, from what you say, I don’t have to file with the state of CT? That makes me very happy.

10 Dan January 16, 2013 at 8:27 pm

Update: Connecticut’s sales tax rate was 6% when you wrote this, but has since risen to 6.035%.

11 Kelly January 28, 2013 at 8:07 pm

Thanks Dan!

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