You asked if military disability payments and military pension count as income for purposes of the veterans' property tax exemptions provided by law.

SUMMARY

By law, disability payments do not count as income for purposes of the additional or local-option veterans' property tax exemptions (CGS § 12-81l). The law was enacted in 2006 and took effect October 1, 2006 (PA 06-153). Military pension counts as income.

VETERANS' PROPERTY TAX EXEMPTIONS

The law requires towns to give wartime veterans and their surviving spouses certain property tax exemptions, commonly referred to as state-mandated exemptions. With their legislative bodies' approval, towns may grant an additional exemption, commonly referred to as a local-option exemption.

The main state-mandated property tax exemptions are granted through two statutes. CGS § 12-81(19) requires towns to exempt from taxation $ 1,000 of the property owned by a veteran or his surviving spouse (and requires larger exemptions for disabled veterans and their surviving spouses). CGS § 12-81g requires towns to give filers who get the basic exemption an additional income-based exemption. For a filer whose income falls below a certain statutorily determined limit, the additional exemption is equal to twice the basic exemption (CGS § 12-81g(a)). For a filer whose income exceeds the limit, the additional exemption is 50% of the basic exemption (CGS § 12-81g(b)). The income limits for nondisabled filers are currently $ 30,500 for single filers and $ 37,300 for married filers. Thus, a non-disabled filer whose income is under the limit is entitled to a $ 3,000 exemption; if the filer's income is above the limit, the exemption is $ 1,500. (The income limits are $ 18,000 for single filers with a 100% Veterans' Administration (VA)-rated disability and $ 21,000 for married filers with a 100% VA-rated disability. )

By law, (1) the income limits must be adjusted annually to reflect any increase in Social Security benefits and (2) the exemptions must be increased to reflect increases in a town's taxable grand list following revaluation.

Local-Option Exemption

A municipality, with its legislative body's approval, may provide an additional exemption to filers entitled to the state-mandated exemptions and may establish a higher income limit for this exemption than the limit in effect for the state-mandated additional exemption (CGS § 12-81f).

The exemption may be a dollar or percentage reduction in the property's assessed value. The maximum dollar reduction is $ 10,000 and the maximum percentage reduction is 10% of the property's assessed value.  Thus, in a town that offers the maximum 10% exemption, a veteran whose house is assessed at $ 200,000 is eligible for an exemption of up to $ 20,000. Towns that offer this optional exemption can establish an income limit of up to $ 25,000 over the income limits in effect for the state-mandated additional property tax exemption in CGS § 12-81g.  

By law, the exemptions must also be increased to reflect increases in the taxable grand list following revaluation (CGS § 12-81f).

Qualifying Income for Income-limited Veterans' Property Tax Exemptions

The law specifies two alternative methods of counting “qualifying income” for the state-mandated and local-option veterans' property tax exemptions. For all veterans seeking local-option exemptions and any veteran with less than a 100% VA-rated disability seeking state-mandated exemptions, “qualifying income” means the veteran's federal adjusted gross income (AGI) plus other income (CGS § 12-81l). This

definition covers income excluded from federal AGI, such as nontaxable Social Security retirement and disability benefits and nontaxable interest income.

For veterans with a 100% VA disability rating applying for a state-reimbursed exemption, qualifying income is limited to federal AGI and excludes other income (CGS § 12-81g(a)).

Regardless of a veteran's disability status, qualifying income excludes:

1. Social Security payments a veteran receives for a dependent person;

2. insurance proceeds for casualty losses;

3. gifts, bequests, and inheritances (though income produced by the gift, bequest, or inheritance must be included);

4. disaster relief grants;

5. income from certain volunteer service stipends earned from programs under the 1973 federal Domestic Volunteer Act, including the Foster Grandparents and Retired Senior Volunteer programs;

6. life insurance proceeds;

7. spouse's Social Security income, if the spouse lives in a Connecticut nursing home or health care facility and receives Medicaid; and

8. food stamp allotments. (Question and Answer Booklet for the Owners', Totally Disabled, and Additional Veterans', Tax Relief Programs, Office of Policy and Management, January 2008).

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