State-by-State Guide to Taxes on Retirees
Tool | December 2021

Connecticut State Tax Guide for Retirees

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

Connecticut

Add to State Compare List | View List
(0) selected | Compare up to 5

The Bottom Line
Flag of Connecticut

Least Tax-Friendly

The Constitution State is a tax nightmare for many retirees...but at least things are improving on the income tax front. The state is gradually eliminating taxes on pensions and annuities for taxpayers with less than $75,000 of federal AGI (less than $100,000 for joint filers). In addition, starting in 2023, the state will start phasing out its tax on distributions from traditional IRAs for many retirees.

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 the 2021 tax year, 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 2025 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

In Connecticut, the median property tax rate is $2,139 per $100,000 of assessed home value.

Connecticut offers property tax credits to homeowners who are at least 65 years old and meet income restrictions. For the 2021 tax relief program, 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 $9.1 million exemption for 2022 (the Connecticut exemption amount will equal the federal estate tax exemption amount beginning in 2023). 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 2022 only when the aggregate value of gifts made since 2005 exceeds $9.1 million (the gift tax threshold will equal the federal estate tax exemption amount beginning in 2023).

Estate and gift tax rates for 2022 are either 11.6% to 12% (a flat 12% rate will be effective beginning in 2023).