Governor Ned Lamont’s proposed tax cuts, labeled as the state’s largest in history, are set to bring relief to an estimated 1 million tax filers, representing 59 percent of all filers. Let’s delve into the details and understand how these changes could impact you.
Governor Lamont’s Vision: The tax relief measures, part of a two-year, $51 billion state budget adopted with bipartisan support, aim to provide broad-based relief to middle-income workers, low-income workers, and seniors. Lamont attributes these tax cuts to the fiscal discipline implemented over the last five years, stabilizing the state’s fiscal house and ending years of deficits and uncertainty.
Income Tax Cut: The centerpiece of the relief package is a significant income tax cut targeted at working-class and middle-income earners. Individuals earning less than $150,000 and couples earning less than $300,000 will benefit from a reduction in the state income tax rates. For example, the 3 percent tax on the first $10,000 of an individual’s earnings will decrease to 2 percent, while the 5 percent rate on the next $40,000 will be reduced to 4.5 percent.
The benefits of these changes will be evident right away, with individuals seeing a boost in their take-home pay from January onwards. A family with a median income of around $90,000 a year could save $497 in income taxes over the next year. However, the impact diminishes for higher-income individuals, and those earning over $150,000 ($300,000 for couples) will not see a reduction in their state income taxes.
Pension & Annuity Taxes: Seniors in Connecticut stand to benefit significantly from the second-largest relief pot, focusing on pension and annuity taxes. Under the existing tax structure, residents with incomes under $75,000 ($100,000 for couples) are exempt from paying taxes on social security payments or earnings from pensions and annuities. However, as income rises above this threshold, the exemption disappears, resulting in a “tax cliff.”
To address this cliff, lawmakers have introduced a phased-out structure, starting with changes to IRA disbursements in 2023 and extending to other adjustments in 2024. This phased approach aims to soften the impact of the tax cliff, providing relief to seniors as they move up the income ladder.
Governor Lamont’s historic income tax cut and changes to pension and annuity taxes are set to bring relief to a significant portion of the population. As a CPA firm, we advise our clients to stay informed about these changes and consult with us to ensure they maximize the benefits available to them under the new tax structure.
For more information, please reach out to your Accavallo & Company Team Member, or [email protected]/ (203) 925-9600
