The Connecticut income tax applies to full-time residents who meet specific income thresholds or conditions and part-time residents and non-residents with income derived from sources within the state. The starting point for calculating the tax is the amount of federal Adjusted Gross Income (AGI) on a taxpayer's federal tax return. Taxpayers make several additions or subtractions to federal AGI to determine the portion of their income subject to Connecticut's income tax. For some filers, this amount is further reduced by a personal exemption. Taxpayers then apply tax rates that depend on the amount of taxable income and vary by filing status. The amount of tax a person actually pays may be further offset by credits, including personal and property tax credits that gradually phase out at higher income levels.

Connecticut's income tax applies to full-time Connecticut residents who have earned or unearned income and part-time residents and non-residents with Connecticut-source income. Taxpayers must file an income tax return if they:

● have Connecticut income tax withheld from their wages,

● make estimated Connecticut income tax payments,

● meet the gross income test (i.e., filing threshold), or

● have a federal alternative minimum tax liability.

In 2009, the gross income test was:

● $12,000 for married people filing separately,

● $13,000 for single filers,

● $19,000 for heads of household, and

● $24,000 for married couples filing jointly or surviving spouses.

Source: DRS' 2009 Connecticut Resident Income Tax Instruction Booklet

The income tax has three income brackets and three tax rates, depending on the amount of taxable income. The rates increase for taxable income that exceeds specified income thresholds, which vary by filing status. For example, a single filer with a taxable income of $1 million pays 3% on the first $10,000, 5% on the income between $10,000 and $500,000, and 6.5% on the last $500,000 of income. Table 2 shows the brackets and rates by filing status.

Source: DRS' 2009 Connecticut Resident Income Tax Instruction Booklet

The amount of tax a filer actually pays may also be offset by a personal tax credit, property tax credit, and credit for income taxes paid to other jurisdictions. The personal and the property tax credit gradually phase out at higher income levels.

Personal Tax Credit. A personal tax credit ranging from 1% to 75% of the tax due is available to all categories of filers up to certain income levels. Like the personal exemption, the personal tax credit phases out at higher income levels until it is completely eliminated. Table 3 shows the CT AGI levels that qualify for the maximum 75% credit and the levels at which the credit phases out. Taxpayers are not charged the full tax rates until their incomes exceed the “no credit” amount.

Source: DRS' 2009 Connecticut Resident Income Tax Instruction Booklet

Property Tax Credit. Taxpayers may qualify for a credit for property taxes paid on a primary residence and automobile in Connecticut. The amount of the property tax credit depends on the amount of property tax paid and the filer's CT AGI. The percent of property tax paid that can be taken as a credit declines as income increases until it completely phases out. The maximum credit allowed, regardless of filing status, is $500 per return.

Table 4 shows for each filing status the (1) threshold for receiving the maximum property tax credit and (2) level above which the credit is no longer available.

Source: DRS' 2009 Connecticut Resident Income Tax Instruction Booklet

Other Income Tax Payments. Taxpayers can also subtract from their Connecticut income tax liability income tax paid to other states or local governments in other states, such as New York City.

The following scenarios and accompanying tables show how the various tax features work.

Scenario 1. Sam is a Connecticut resident, files as single and has $27,000 in federal AGI. He paid $315 in property tax on his car in 2009.

Sam's CT AGI qualifies him for a $12,000 personal exemption and a 15% personal tax credit. His income tax liability is further reduced by a property tax credit equal to the total $315 he paid in property taxes.

Table 5: Single Filer with Federal AGI of $27,000

Scenario 2. Jack is a Connecticut resident who files as head of household. In 2009, he had a federal AGI of $142,000 and paid $6,500 in property taxes. He also made $2,000 in contributions to his son's CHET account.

Jack can subtract from his federal AGI the $2,000 he contributed to his son's CHET account, but his income makes him ineligible for the personal exemption and the personal tax credit. While he is still able to offset his tax liability with a property tax credit, his income level reduces his property tax credit to $150 of the maximum $500 credit.

Table 6: Head of Household Filer with Federal AGI of $142,000

Scenario 3. Tom and Kat are Connecticut residents and file as married filing jointly. They have a federal AGI of $170,000. Tom works in Connecticut and earned $62,000 in wages. Kat earned $25,000 in wages working in New York and $80,000 working in Connecticut. Kat filed a New York nonresident income tax return and paid $1,560 in taxes. They paid $7,300 in property taxes on their house and cars.

Tom and Kat do not quality for a personal exemption or a personal tax credit, but they can receive a credit for the income tax they paid to New York. (The amount of the credit is based on their Connecticut income tax liability and the proportion of income attributable to New York included in their CT AGI.) They can also claim a property tax credit of $150.

Table 7: Joint Filers with Federal AGI of $170,000 and Income Tax Paid to Another State

Table 9 compares the major features of the income tax in Connecticut, Maryland, Massachusetts, New Jersey, New York, and Rhode Island. It includes the filing thresholds, personal exemptions, range of rates, number of tax brackets, and income levels at which the top marginal tax rates begin. The information listed is for the 2009 tax year.

Table 8: Comparison of Income Taxes in Connecticut and Selected States in 2009

* In June 2010, the Rhode Island General Assembly passed a tax bill that significantly changes the state's income tax structure. Among other things, the new law reduces the number of tax brackets from five to three, with rates ranging from 3.75% to 5.99%. The changes are effective January 1, 2011.

Sources: CCH State Tax Guide; Instructions for the NJ-1040; Maryland 2009 State & Local Tax Forms & Instructions; 2009 Massachusetts Resident Income Tax Form 1 Instructions; RI-1040 Rhode Island Resident Individual Income Tax Return; Combined Instructions for Forms IT-150 and IT-201: New York Full-Year Resident Income Tax Returns

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