You asked several questions regarding state income taxes and property taxes for senior citizens. We list each question and answer individually below.

What are the income thresholds for the Social Security deduction under the state income tax?

Federal Income Tax. Social Security benefits are partly taxable for a recipient whose income exceeds a specified amount. The income counted for determining the exemption is all the non-Social Security income a person receives (including any tax-exempt interest) plus 50% of his Social Security benefits for the year. If that total exceeds $ 32,000 for a married couple filing jointly or $ 25,000 for a single person, head of household, or married person filing separately, then 50% of the Social Security benefits are taxable. If the total exceeds $ 44,000 for joint filers or $ 34,000 for other filers, 85% of Social Security benefits are taxable.

Connecticut Income Tax. State law allows a Connecticut taxpayer to deduct 100% of his federally taxable Social Security benefits if he is (1) single or married filing separately and his federal AGI is less than $ 50,000 and (2) married filing jointly or a head of household whose federal AGI is less than $ 60,000. A filer whose federal adjusted gross income (AGI) equals or exceeds the applicable threshold can deduct 75% of his federally taxable benefits.

What percentage of seniors receive tax relief under the state Social Security benefit deduction?

This information is not available from the Department of Revenue Services (DRS) at this time, according to Ernie Adamo of DRS’ research division. DRS has already run its tax statistics for the 2002 tax year and is unable to devote the programming time and resources it would take to rerun the 2002 data to determine the number of Connecticut full- and part-year residents who took advantage of the state deduction for federally taxable Social Security benefits. Adamo said that DRS may be able to add the requested statistic when it runs tax statistics for the 2003 tax year.

DRS reports that the total amount of federally taxable Social Security benefits subtracted on line 40 of Form CT-1040 (resident) and line 42 of Form CT-1040NR/PY (non-resident, part-year) for the 2002 tax year was $ 1,278,841,735.

Would the state have to pass a law to allow municipalities to freeze property tax rates for senior citizens? Has any such enabling legislation ever been proposed?

The state does have to pass specific laws before municipalities may grant any type of property tax relief. The state already has several laws that either require or allow towns to provide relief to elderly taxpayers. Some of the programs are limited by income and for some, the state reimburses the towns for lost revenue. We enclose a copy of a 2001 OLR Report (2001-R-0712) that summarizes the existing property tax relief programs for the elderly.

The state enacted a property tax freeze for low-income elderly people in 1967 but closed it to new applicants in 1979. It applies to homeowners with annual taxable incomes of $ 6,000 or less.

Although the law does not currently allow towns to freeze or put a dollar cap on property taxes, they are allowed to abate the amount of property taxes for any homeowner regardless of age, that exceed 8% of the owner’s income for a given year (CGS § 12-124a). The owner must apply for the abatement within 30 days before the tax due date. If the legislative body approves the abatement, the owner must agree to reimburse the town for the abated amount plus interest when the owner dies or the property is sold. According to a 1998 OLR survey, at least nine towns offer this benefit: Berlin, Bridgeport, Brooklyn, Cheshire, Fairfield, Milford, Pomfret, Salisbury, and Wolcott.

A computer search of legislation introduced since 1988 shows two proposed bills that would have allowed municipalities to adopt property tax freezes for elderly residents. Both bills included income limits. SB 462, introduced in 2001, would have allowed towns to adopt their own income and other qualifying criteria. HB 5600, introduced in 2003, would have limited the freeze to elderly residents with incomes of less than $ 100,000. SB 5600 would also have imposed other conditions. SB 462 was referred to the Finance, Revenue and Bonding Committee. HB 5600 was referred to the Planning and Development Committee. Neither committee took any action on the proposals. We attach copies of the bills.

Would there be problems for the state to establish a property tax freeze statute? What about a program to freeze property taxes for people who meet specified income guidelines?

A major issue that arises from property tax freeze proposals is how to deal with the resulting municipal revenue loss. The loss would have to be made up by (1) increasing taxes on other property taxpayers in the town who were not eligible for the freeze; (2) reducing municipal spending for services to compensate; or (3) requiring the state to reimburse municipalities for the revenue loss, which would require state revenue increases or compensating state service reductions. Another issue is how to provide tax relief for qualifying renters under a property tax freeze program.

An income limitation on the benefit would reduce the municipal revenue impact. The renter tax relief issue would not change.

When people contribute to pension plans, are the contributions subject to income taxes? Are benefits taxable when the beneficiary receives them? If the answer to both questions is yes, why are seniors taxed twice on these dollars?

Although specific taxation of pensions and annuities can vary depending on the type of plan, in general, there is no double taxation of employee pension contributions. Many plans involve contributions on a pre-tax basis, such as with contributions to traditional IRA, 401(k), 403(b), and 457 plans among others. If contributions are made with after-tax income, the portion of the employee’s benefits attributable to his own contributions are not taxed when the employee receives them. IRS publication 575, Pension and Annuity Income, explains the rules for calculating the taxable and nontaxable portions of periodic and nonperiodic pension and annuity payments.

Premiums that people pay to get health insurance are tax-deductible but contributions to Medicare are not. Why can’t Medicare be tax-deductible as well?

Employee Medicare contributions are not taxed. The contributions are themselves a tax equal to 1. 45% of Medicare covered wages.

The federal tax deduction for the cost of health insurance premiums is limited. A taxpayer may deduct only medical and dental expenses, including health insurance premiums, that exceed 7. 5% of his federal AGI. There is also a federal Health Care Tax Credit for 65% of qualified health insurance premiums, but eligibility for the credit is very limited. It is restricted to certain workers eligible for benefits under the federal Trade Assistance and Trade Readjustment acts, which apply to workers who lose jobs or wages as a result of increased imports, and to certain workers who receive benefits from the federal Pension Benefits Guaranty Corporation, which pays pensions to workers whose employer pension funds go bankrupt.

More information about medical and dental expense deductions and the Health Care Tax Credit may be found in IRS Publication 502 (2003).

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