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Tool | August 2013

State-by-State Guide to Taxes on Retirees

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Connecticut

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The Bottom Line
Map of Connecticut

NOT TAX-FRIENDLY

One of Kiplinger's top ten least tax-friendly states for retirees, the Constitution State is a tax nightmare for many retirees. Its real estate taxes are the second-highest in the nation, according to the Tax Foundation. It allows a 50% exclusion for military pensions, but it has no exemptions or tax credits for other types of pensions or other retirement income. And it taxes a portion of Social Security benefits for taxpayers above certain income thresholds.

State Sales Tax

6.35% for most items; 7% for certain luxury items. There are no local sales taxes. Connecticut has a weeklong sales tax holiday, from August 18 to August 24 in 2013.

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: 6.7% (on the amount over $500,000 for married joint filers and over $250,000 for those filing individually)

Social Security

Social Security is exempt for individual taxpayers with federal adjusted gross income of less than $50,000 and for married taxpayers filing jointly with federal AGI below $60,000.

Exemptions for Other Retirement Income

All out-of-state government and federal civil-service pensions are fully taxed. Connecticut exempts 50% of federally taxable military retirement pay from state income tax. The exemption applies to federal retirement pay for members of the U.S. Army, Navy, Air Force, Marines, Coast Guard, and Army and Air National Guard. Benefits received by a beneficiary under an option or election made by a retired member are also covered by this law.

Property Taxes

Taxes are assessed and collected by individual towns and other taxing districts. All assessments are at 70% of fair market value. Median property tax on the state's median home value of $291,200 is $4,738, according to the Tax Foundation.

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 $39,500 for married claimants (with a maximum benefit of $1,250) and $32,300 for single claimants (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.

Inheritance and
Estate Taxes

Connecticut imposes an estate tax on the transfer of estates valued at $2 million or more at a progressive rate starting at 7.2%. The rate rises to a maximum of 12% for an estate valued above $10.1 million. There is no inheritance tax.

Connecticut is one of two states 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 after January 1, 2005, and over $2 million is taxed, starting at 7.2% of the excess and rising to $748,200 plus 12% of the excess over $10.1 million.

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