Topic:
HANDICAPPED; ELDERLY; LEGISLATION; TAX CREDITS; TAX EXEMPTIONS; LIENS;
Location:
TAX EXEMPTIONS - ELDERLY;

OLR Research Report


April 24, 2006

 

2006-R-0309

COMPARISON OF NEW ELDERLY TAX FREEZE IN HB 5093 WITH CIRCUIT BREAKER

By: Helga Niesz, Principal Analyst

You asked for a side-by-side comparison of the features of the tax freeze for elderly homeowners proposed under sHB 5093 and the existing “circuit breaker” elderly and disabled tax relief program. Since the bill would allow people to be eligible for both programs, as well as others, you also asked (1) about benefits and disadvantages for people who apply for one or both and (2) what the effect would be on current participants in the elderly tax freeze program that is being phased out.

SUMMARY

sHB 5093 allows towns to freeze the property taxes on homes owned by certain elderly people. To be eligible, the homeowner or his spouse must be age 70 or older and have lived in the state at least one year. The freeze continues for a surviving spouse who is at least age 62 when the homeowner dies. Homeowners must meet the same income limits as apply to the existing, state-reimbursed “circuit breaker” program, which gives qualified homeowners age 65 or over a tax credit against the property taxes on their homes (not a freeze of the actual tax).

The bill also allows towns to impose asset limits for eligibility and to put a lien on the property (which is not allowed for the circuit breaker program). It does not provide state reimbursement for lost revenue to a town that chooses to offer this optional tax freeze (the circuit breaker is mandatory and reimbursed by the state.)

Under the bill, people whose taxes are frozen can still simultaneously qualify for other property tax relief programs: the circuit breaker, the existing elderly tax freeze, and other nonreimbursed local option tax abatements for the elderly. Participating in the new freeze and the circuit breaker could give people more assurance that their taxes would not go up in the future. In some limited situations, even the few people left on the elderly tax freeze could find it beneficial, but their taxes are already frozen at a low level except under a few special circumstances. Asset limits towns might impose and the towns' authority to impose a lien on the property – features which the circuit breaker and existing tax freeze do not have—could limit people's interest in the new tax freeze.

TABLE 1: COMPARISON OF EXISTING CIRCUIT BREAKER PROGRAM AND HB 5093'S NEW TAX FREEZE

Feature

Current Homeowners' Circuit Breaker (CGS 12-170aa, bb, cc)

New Tax Freeze

Eligibility

   

Age

Homeowner or spouse must be age 65 or over by end of calendar year preceding the date of filing or totally disabled

Homeowner or spouse must be age 70 or over by end of calendar year preceding the date of filing

Survivors' Eligibility

When homeowner dies, surviving spouse who is at least age 50 and living with the homeowner when he died can continue on program

When homeowner dies, surviving spouse can continue on program if she is at least age 62 and was living together at the time of the homeowner's death

Residence: Must own the property (or see below) and occupy it as their principal residence

Yes. Principal residence is not defined in the statute, but OPM policy says he must live there at least for six months and one day each year. Otherwise, no requirement to have lived in the state for any period of time.

Yes. And either spouse must have lived in Connecticut for at least one year before filing the claim

Includes a tenancy for life use or for a term of years on property, if the tenant is liable to pay property taxes

Yes

Yes

Includes mobile homes

Yes

Yes

Annual Income Limits

$27,700 for singles and $33,900 in 2005 for claims filed in 2006 (adjusted annually for inflation)

Same as circuit breaker

Asset Limits

None (and towns have no discretion to impose)

Towns may impose them at their discretion

Table: Continued

Feature

Current Homeowners' Circuit Breaker (CGS 12-170aa, bb, cc)

New Tax Freeze

Must agree to have a lien put on their property for repayment of taxes after death or sale of property

Liens are prohibited

Towns can require this at their discretion

Must reapply every two years

Yes

Yes

Benefits

Participants get a credit against their property taxes based on their marital status and income. Credits are awarded on a sliding scale, as a percentage of the tax due, with minimum and maximum credits for each income range. For example, at the lowest income range ($0 to $13,000) a married couple's credit can be 50% of their tax due, up to $1,250 but no less than $400 unless the actual tax is lower. At the highest range ($27,700 to $33,900), a couple's credit can be 10% of the tax due, but no more than $250 and no less than $150 (chart attached)

Permanently freezes property tax payment at the level due for the assessment year beginning October 1 immediately preceding the year in which the initial claim for tax relief is made. Frozen taxes can be lowered in subsequent years if the town decides on a lower general tax levy.

Town Authority and Benefits

   

State reimbursement for revenue lost by town

Yes

No

Authority to change income limits

No for state-reimbursed circuit breaker program. But towns can have higher limits for optional, non-reimbursed additional town benefits

No

Authority to set asset limits

No

Yes

Authority to impose lien on property

No

Yes

ADVANTAGES AND DISADVANTAGES OF NEW TAX FREEZE FOR SENIORS

Because the bill freezes their taxes, not the assessed value of their property, taxes for participants in the new freeze program will not change as a result of either a mill rate increase or higher assessment due to a revaluation. Since the bill allows participants still to be eligible for other programs, someone who now qualifies for the circuit breaker tax credits could benefit from the tax freeze when he reaches age 70. A circuit breaker participant's actual tax due can rise as the town's mill rate or his home's value increases because his tax credit is deducted from the tax the town imposes. Currently, about 43,000 people participate in the circuit breaker program statewide; around 15 to 20% are disabled people under age 65.

Once someone participating in the circuit breaker qualifies for the new freeze, it appears his credit could be applied to (1) the frozen tax due amount or (2) the tax he would otherwise have paid, which would give the town more state reimbursement. (The bill does not specify the details of this process; it only says that people on the freeze are not prevented from participating in specified other tax abatement programs for which they are eligible. Most likely, this would still have to be worked out with the Office of Policy and Management, which currently reimburses towns for their lost revenue under the circuit breaker.)

Seniors' interest in the tax freeze may vary depending on whether a town sets an asset limit and whether it requires a lien on the property. An asset limit would further limit the pool of people who would be eligible for the freeze. Putting a lien on the property could deter people who would otherwise qualify, but do not want to impair the equity in their homes that they can pass on to their heirs. People with these concerns could choose not to participate and instead just stay with the current circuit breaker program, which has no lien requirement.

EFFECT ON EXISTING CLOSED TAX FREEZE BENEFICIARIES

The Elderly/Disabled Tax Freeze Program (CGS 12-129b to 129d), begun in 1967, has not accepted new participants since 1979. Only 800 people, those who were in the program when it closed, continue to receive benefits. Since their taxes are generally frozen at much lower levels than their current tax bills would be, very few of this group would need the new program, although the bill makes them eligible for it. This eligibility may benefit people in the limited situations where the homeowner's frozen tax bill can still increase.

The old program generally freezes property taxes for homeowners age 65 and over who have $6,000 or less in annual qualifying income (regardless of whether they are married or unmarried), which is considered federal adjusted gross income plus tax-exempt interest. Qualifying income excludes Social Security income, U.S. Postal pensions, and certain other types of income. However, the maximum annual benefit under this program is $2,000.

HN:ts