You asked for a summary of changes the General Assembly has made in the personal income tax since Governor Weicker left office (1995).

SUMMARY

The General Assembly has made many changes in state income tax rates, credits, taxable income, and administration since 1995. It has passed at least one act affecting the tax in each of the last seven years, including:

· Reducing taxes by increasing the share of taxable income subject to the lower, 3%, tax rate (1995, 1997)

· Establishing and then increasing the property tax credit against the income tax (1995, 1997, 1998, and 1999)

· Extending the property tax credit to long-term leased vehicles (1997)

· Reducing, and in some cases eliminating, the Social Security income subject to the tax (1997,1999, and 2000)

· Giving tax rebates to income tax filers (1998 and 1999)

· Reducing taxes on single filers by increasing their standard deduction and income thresholds for phasing out tax credits (1999 and 2000)

· Exempting Holocaust settlement payments from the tax (2000)

· Imposing the tax on nonresidents' Connecticut lottery winnings over $ 5,000 (2001)

· Exempting September 11^th and 2001 anthrax terrorist victims and their estates from state income taxes for the 2001 tax year (2002)

This report briefly summarizes the income tax aspects of public acts passed in General Assembly regular and special sessions in the past seven years. It does not include acts dealing with how the Department of Revenue Services (DRS) administers or collects all taxes, including the income tax. Acts are listed in numerical order by year.

1995

PA 95-5 - Technical Changes

The act made technical changes and clarifications, and a few small substantive adjustments, to the income tax law. Many of these changes made the state law more closely mirror federal income tax law.

It made it clear that (1) employers who are late in paying income tax withheld from employee wages or (2) fiduciaries who fail to pay the taxes on a trust or estate are subject to a 10% penalty plus interest at 1. 25% per month. If the failure to pay is willful, they are also subject to a fine of up to $ 1,000, imprisonment for up to one year, or both.

It subdivided the definition of the Connecticut alternative minimum tax into two parts, one for a trust or estate and the other for an individual and it required alternative minimum taxes or income taxes paid in other jurisdictions be taken into account in computing the Connecticut alternative minimum tax credit.

Finally, it gave DRS extra time in certain circumstances to mail a deficiency assessment requiring a taxpayer to pay additional income taxes.

PA 95-160 - Tax Reduction and Property Tax Credit

The act reduced the tax rate on part of taxable income from 4½% to 3% in two steps, one starting on or after January 1, 1996 but before January 1, 1997, and the second on and after January 1, 1997. It also gave taxpayers up to a $ 100 income tax credit for property taxes paid on a primary Connecticut residence or on motor vehicles.

PA 95-263 - Tax On Nonresident Athletes Of National Teams, Estimated Payment Provisions For Farmers And Fishermen, And Estimated Payment Procedures

The act allowed DRS to require professional athletic teams to file composite Connecticut state income tax returns for their nonresident team members and make estimated tax payments instead of withholding taxes for both resident and nonresident team members.

It also (1) required farmers and fishermen to make two annual payments on estimated taxes instead of four; (2) reduced the monthly interest on underpayments of estimated tax from 1. 25% to 1%; (3) eliminated the requirement that taxpayers whose tax liability is expected to be more than $ 200, or $ 200 above the amount withheld from their wages, file a declaration of estimated tax for the current taxable year; (4) exempted taxpayers who file returns for a taxable year on or before January 31 of the next year and pay the tax in full from any additions to the tax, such as interest or penalties for an underpayment of the fourth quarter's installment; and (5) required taxpayers (including trusts and estates), where applicable, to take adjusted federal alternative minimum taxable income into account when calculating required estimated payments.

1996

PA 96-94 - Time For Filing Certain Amended Returns

The act gave taxpayers until June 7, 1996 to file amended 1991 personal income tax returns when their final liability for income tax paid to another state was different from the credit claimed on their Connecticut returns.

PA 96-139 - Changes And Corrections

The act specified that the property tax credit for joint filers could not exceed $ 100 of the aggregate property taxes they paid. It also specified that the definitions of various categories of taxpayers (i. e. , head of household, married filing jointly) for state income tax purposes were the same as the federal definitions of those terms.

PA 96-221 - Various Changes And Modifications

Credits. The act required taxpayers claiming more than one income tax credit to claim them in the following order:

1. the credit based on adjusted gross income;

2. credits for income taxes paid to other states;

3. credits for income taxes imposed by other jurisdictions for people subject to the federal alternative minimum tax;

4. any other credits that cannot be carried forward, in the order that maximizes their value to the taxpayer; and

5. other credits that can be carried forward, in the order that maximizes their value to the taxpayer.

Withholding. In some cases, the act changed when an employer had to pay taxes withheld from employees' pay to DRS. It also eliminated a requirement that an employer hold any additions to taxes, plus associated interest and penalties, in a special fund.

Trusts and Estates. The act required that tax liability on trusts and estates be adjusted to reflect any refund or credit for overpayment of Connecticut income tax, to the extent that it is (1) included in gross income for federal income tax purposes and (2) deductible in determining federal taxable income for the preceding taxable year.

Combat Zones. The act expanded the scope of a law waiving income tax deadlines for people serving in combat zones to cover zones and times designated by Congress as well as by the president, if Congress provides that such service is to be treated the same as service in presidentially designated zones and times.

1997

PA 97-81 - Penalty For Underpayment

The act increased, from $ 201 to $ 501, the amount by which a taxpayer's estimated income tax must be under-reported before interest charges apply.

PA 97-286 - Minor And Technical Changes

The act gave a person who does not live in Connecticut but keeps a permanent residence here and who is in the state more than 183 days in a taxable year and domiciled in another state, a tax credit against Connecticut's income tax for income tax paid to the jurisdiction where he resides, as long as the other state provides a reciprocal credit to a Connecticut-domiciled resident in the same circumstances.

PA 97-309 - Reductions and Property Tax Credit

Tax Rate. The act increased the amount of Connecticut taxable income subject to the 3% rate, thereby reducing the tax due. For single taxpayers and married people filing separately, the increase was from $ 4,500 to $ 7,500 starting January 1, 1998 and to $ 9,000 starting January 1, 1999. For heads of households, the increase was from $ 7,000 to $ 12,000 in 1998 and to $ 15,000 in 1999. For married people filing jointly, the increase was from $ 9,000 to $ 15,000 in 1998 and to $ 18,000 in 1999.

Social Security Income. The act excluded half of the Social Security benefits previously subject to income tax from the calculation of Connecticut adjusted gross income, starting with the 1998 income year.

Credit for Property Taxes. The act increased the maximum property tax credit to $ 215 for the 1997 tax year and $ 275 in subsequent years. It limited the credit to one vehicle for individuals, heads of households, and married people filing separately and to two vehicles for married people filing jointly.

It also reduced the amount of the credit above $ 100 by 10% for every $ 10,000 in income above a certain threshold for every filing status except married filing separately. (For this group, the reduction was 10% for every $ 5,000. ) For individual filers, the threshold was a Connecticut adjusted gross income of $ 52,500; for married people filing separately, $ 50,250; for heads of households, $ 78,500; and for joint filers, $ 100,500.

The act extended the credit to vehicles leased for more than one year.

PA 97-322 - Tax Reductions For The Biennium Ending June 30, 1999

The act increased the amount of income subject to the 3% rate for the 1997 income year from $ 4,500 to $ 6,250 for singles or married people filing separately; from $ 7,000 to $ 10,000 for heads of households; and from $ 9,000 to $ 12,500 for joint filers.

For 1999 and subsequent years, it increased the amounts subject to the 3% rate from $ 9,000 to $ 10,000 for single people and married people filing separately, from $ 15,000 to $ 16,000 for heads of households, and from $ 18,000 to $ 20,000 for joint filers.

The act increased the maximum property tax credit for 1999 and thereafter to $ 285.

1998

PA 98-110 - Reductions In Taxes For Individuals And Businesses

The act provided, for state residents who filed a 1997 income tax return, a one-time tax rebate of up to $ 75 for single filers and married people filing separately, $ 120 for heads of households, and $ 150 for joint filers. It also increased the maximum property tax credit from $ 285 to $ 350.

PA 98-244 - Simplification, Enforcement, And Minor Changes To Various Tax Statutes

Taxes Owed to Other States. The act allowed DRS to withhold all or part of a taxpayer's refund if requested by another state whose tax officer certifies that the taxpayer owes taxes to it.

Adjustments. The act extended, from 30 to 90 days, the amount of time a resident who claims an income tax credit for tax paid to another jurisdiction has to report the filing of an amended return with the other jurisdiction or changes made by that jurisdiction. It eliminated credit for income tax paid to a Canadian province.

The act made it clear that an individual whose federal income tax return is changed is entitled to a refund of state income tax if the change reduces his state liability.

Athletes, Entertainers, and Performing Artists. The act lowered the tax paid by nonresident athletes, entertainers, and performing artists on income derived from closed-circuit or cable television transmissions of an event taking place in this state, other than regularly scheduled events, by basing the calculation of income on the extent that the transmissions are received or shown in the state.

Late Payments. The act eliminated the penalty for late tax payments if at least 90% of the tax owed is paid by the original due date and the balance is paid by the extended due date.

Deficiency Assessments. The act permitted DRS to send a notice of proposed deficiency assessment to a nonresident or part-year taxpayer within six years after an income tax return is filed if the taxpayer omits more than 25% of the proper adjusted gross income (if an individual) or Connecticut taxable income (if a trust or estate) and the income is derived from Connecticut.

PA 98-262 - Technical Changes And Additions To Various Tax Statutes

In figuring the property tax credit against the personal income tax, the act excluded any interest, fees, and charges. It also made clear the income tax treatment of nonresident shareholders of subchapter S corporations.

1999

PA 99-48 - Adopting Certain Provisions Of The IRS Restructuring And Reform Act Of 1998 For Connecticut Tax Purposes

The act (1) suspended the running of the period for filing a tax refund claim while the taxpayer is financially disabled; (2) specified that husbands and wives who file joint income tax returns are individually liable for the tax, but established procedures and standards allowing DRS to excuse an innocent spouse who files a joint tax return from paying taxes, interest, and penalties for an understatement of taxes attributable to the other spouse's erroneous items; (3) allowed certain joint filers to ask DRS to limit their liability for any assessed tax deficiency to the portion that is properly allocable to them under procedures and standards the act established; and (4) gave DRS authority to grant tax relief to a joint filer even if relief is not otherwise available under the act if, taking into account all the facts and circumstances, it is inequitable to hold a joint filer liable for all or part of any tax or deficiency.

PA 99-121 - Improvements In Procedures And Administration And Minor Changes To Various Tax Statutes

The act made clarifying and minor changes in the procedures and notice requirements for DRS income tax jeopardy and deficiency assessments.

PA 99-173 - Various Tax Reductions, Exemptions And Credits For Individuals And Businesses

Rebate. The act authorized a $ 50 rebate for sales and use taxes people paid in 1998. People who lived in the state as of December 31, 1998 qualified for rebates if they were required to file a state or federal income tax return, received the federal earned income tax credit, or received federal Social Security tax benefits. Joint filers received joint rebates.

Property Tax Credit. The act increased the maximum property tax credit to $ 425 for 1999 and $ 500 for subsequent years.

Beginning with the 2000 tax year, the act gradually raised the income threshold above which singles must reduce the credit amount from $ 52,500 to $ 64,500 by 2007.

Increased Standard Deduction for Single Filers. The act increased the personal exemption for single filers from $ 12,250 to $ 15,000 over eight years, beginning with the 2000 tax year, and reduced the amount of the exemption in each of these years by $ 1000 (or fraction of $ 1,000) for incomes above specified thresholds.

Tax Credit. The act extended tax credits to single people with higher Connecticut adjusted gross incomes over seven years, beginning with the 2000 tax year.

Calculating Withholding and Estimated Taxes. The act required singles to calculate their withholding and estimated taxes from January 1, 2000 to June 30, 2000 without regard to the act's changes and required DRS to issue new withholding tables effective July 1, 2000.

Social Security Income. The act exempted the following taxpayers from paying state income taxes on any of their federally taxable Social Security income:

1. singles with federal adjusted gross incomes (AGI) under $ 50,000,

2. married people filing separately with AGIs under $ 50,000,

3. joint filers with AGIs under $ 60,000, and

4. heads of households with AGIs under $ 60,000.

2000

PA 00-82 - Treatment Of Holocaust Reparations

The act exempted settlement payments to Holocaust victims from the state income tax and defined "Holocaust victim" and "Holocaust victim settlement payment" for purposes of the exemption.

PA 00-170 - Reduction Of Various Taxes

The act required DRS to waive interest and penalties for taxpayers who owed additional tax for 1999 because New York's commuter tax was declared unconstitutional.

PA 00-174 - Administrative Changes And Clarifications To Various Tax Statutes

"Claim of Right" Repayment Deductions. The act allowed a taxpayer to reduce his state taxes for the current year when he repays income he received in a previous year to which he thought he had an unrestricted right (called a "claim of right") and on which he therefore paid Connecticut income taxes.

Connecticut Residency. The act adopted the "548-day rule" as one test of Connecticut residency for income tax purposes and modified one of the other residency tests by specifying that an armed forces member from out-of-state who lives here for more than 183 days in any tax year can only be considered a nonresident if he is here on active service.

Credit Against Alternative Minimum Tax. The act eliminated a credit against Connecticut's alternative minimum income tax for alternative minimum taxes paid to a Canadian province.

Deductions from Gross Income. The act eliminated a deduction from taxable gross income for refunds or credits of overpayment of income taxes paid to a Canadian province.

It extended the tax exemptions for Social Security benefits by specifying that they apply to single filers and married joint filers and clarified the description of taxable Social Security benefits.

Standard Deduction for Single Filers. The act corrected errors in the 1999 law phasing out the single filer standard deduction.

Payment Deadline for Extensions. The act specified that a taxpayer seeking to avoid a penalty because he received an extension and owes less than 10% more than he owed on his original due date must submit the return and payment by the extended due date.

Notice of Amended Return. By law, a taxpayer who files an amended federal return must file an amended state return with DRS within 90 days. The act specified that this requirement applies both to individual taxpayers whose reported federal adjusted gross income changes and to trusts and estates when their federal taxable incomes change.

The act also specified that the requirement applies to tax changes under the federal "claim of right" law that allows a taxpayer to reduce his federal tax if he paid too much in a prior year or years on the mistaken assumption that he had an unrestricted right to certain income.

Refund Claims. By law, a claim for a tax refund must be filed within three years of the payment due date. The act specified that, when the taxpayer received a filing extension, a refund claim is timely if it is filed within three years after the date he filed his return or within three years of the extended due date, whichever is earlier.

By law, the state has 90 days to pay a refund. If a refund claim is filed before the tax filing deadline date, the 90-day clock starts to run on the filing date. Under the act, the filing deadline must be determined without regard to filing extensions.

Deficiency Assessments. The act (1) allowed DRS to make deficiency assessments after the three-year deadline if the original return is either false or fraudulent instead of only if it is both; (2) specified that deficiency assessment deadlines and exemptions from them apply to amended returns resulting from federal "claim of right" changes; and (3) specified that the fact that DRS filed a return on behalf of someone who failed to do so does not start the three-year time limit on deficiency assessments or prosecutions for willful violations running.

2001

PA 01-6, June Special Session - Various Taxes And Other Provisions Related To Revenues Of The State

Lottery Winnings. The act imposed Connecticut income tax on a nonresident's winnings of more than $ 5,000 in a lottery run by the Connecticut Lottery Corporation and, by doing so, had the simultaneous effect of giving a Connecticut resident who wins more than $ 5,000 in another state's lottery a credit against his Connecticut income tax for any income taxes he must pay in the other state on his winnings.

Definition of Adjusted Gross Income. The act specified that the starting point for determining a taxpayer's Connecticut adjusted gross income for state income tax purposes is the federal adjusted gross income he reported on his federal return, thus overturning a Connecticut Supreme Court ruling that a taxpayer could adjust his adjusted gross income to account for federal deductions in a prior year that produced no corresponding Connecticut tax benefit to him in that year.

Trusts and Estates. The act made Connecticut income tax credits that apply to residents and part-year residents for income tax payments to other states also apply to resident trusts and estates and part-year resident trusts, respectively.

2002 REGULAR SESSION

PA 02-126 - Tax Exemption For Children And Spouses Of Terrorist Victims

The act granted state income tax relief to terrorist victims who (1) died of wounds or injuries sustained in the September 11, 2001 attack or in an anthrax attack occurring between September 11, 2001 and January 1, 2002 and (2) is not identified by the U. S. attorney general as a conspirator or participant in the attack or a representative of either. Under the act, neither a victim nor his estate was required to pay state income taxes for 2001.

For joint filers, the act limited the exemption to the victim's share of the couple's total tax liability and it extended the same limitation to an existing income tax exemption for active duty U. S. Armed Forces members who die while serving in a combat zone.

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