State-by-State Guide to Taxes on Retirees
Tool | December 2020

Connecticut State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.

Connecticut

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The Bottom Line
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Least Tax-Friendly

The Constitution State is a tax nightmare for many retirees...but at least things are improving on the income tax front. For the 2020 tax year, only 28% of income from a pension or annuity is exempt for taxpayers with less than $75,000 of federal AGI (less than $100,000 for joint filers). But the exemption percentage will increase by 14% each year until it reaches 100% for the 2025 tax year.

Connecticut has the third-highest median property tax rate in the U.S., so the $10,000 cap on the federal tax deduction for state and local taxes stings a bit more here. The state offers property tax credits to homeowners who are at least 65 years old and meet income restrictions, though.

Connecticut also imposes an estate tax and a gift tax (it's the only state with a gift tax).

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: 6.99% (on the amount over $1 million for married joint filers and over $500,000 for those filing individually)

Taxation of Social Security Benefits

Social Security income is fully exempt for single taxpayers with federal adjusted gross income of less than $75,000 and for married taxpayers filing jointly with federal AGI of less than $100,000. Taxpayers who exceed these thresholds can still deduct 75% of their federally taxable Social Security benefits on their Connecticut tax return.

Tax Breaks for Other Retirement Income

For 2021, 42% of income from a pension or annuity is exempt for joint filers with less than $100,000 of federal adjusted gross income and other taxpayers with less than $75,000 of federal AGI. The exemption percentage is increased 14% each year until it reaches 100% for the 2025 tax year and beyond.

Beginning in 2023, 25% of any distribution from a traditional IRA is exempt for joint filers with less than $100,000 of federal adjusted gross income and other taxpayers with less than $75,000 of federal AGI. The exemption percentage is increased 50% in 2024, 75% in 2025, and 100% in 2026 and thereafter.

To the extent it's included in federal AGI, 50% of income from the Connecticut teachers' retirement system is exempt. Teachers can claim this tax break or the general 42% pension exemption, but not both.

Military pensions and Railroad Retirement benefits are fully exempt.

Sales Tax

The state taxes most items at 6.35%, and localities are not allowed to add to that.

Groceries: Exempt
Clothing: Taxable (6.35% for items under $1,000; 7.75% for items over $1,000; items costing less than $50 are fully exempt)
Motor Vehicles: Taxable (6.35% for vehicles under $50,000; 7.75% for vehicles over $50,000; 4.5% for non-resident military personnel on full-time active duty in the state)
Prescription Drugs: Exempt

Real Property Taxes

Connecticut offers property tax credits to homeowners who are at least 65 years old and meet income restrictions. Income ceilings are $45,800 in 2020 for married couples (with a maximum benefit of $1,250) and $37,600 in 2020 for singles (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.

An income tax credit for up to $200 of property taxes paid is also available to residents age 65 or older. The credit begins to phase-out for single taxpayers with a Connecticut AGI above $49,500 and married taxpayers filing a joint return with a Connecticut AGI above $70,500.

Annual Car Taxes and Fees

An annual vehicle property tax is imposed. The rates are set by individual municipalities. Motor vehicle assessments are based on 70% of the average retail value as determined by the local assessor.

Estate and Inheritance Taxes

Connecticut has an estate tax with a $7.1 million exclusion ($9.1 million in 2022). The tax due is limited to $15 million.

Connecticut is the only state with a gift tax on assets you give away while you're alive. If you made taxable gifts during the year, state law requires that you file a Connecticut estate and gift tax return to identify such gifts. However, taxes are due in 2021 only when the aggregate value of gifts made since 2005 exceeds $7.1 million ($9.1 million in 2022).

Estate and gift tax rates for 2021 range from 10% to 12%.

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