Location:
TAXATION; TAXES - INCOME;
Scope:
Connecticut laws/regulations;

OLR Research Report


August 25, 2011

 

2011-R-0275

-Revised-

PERSONAL INCOME TAX CREDITS

By: Rute Pinho, Associate Analyst

You asked for a description of the state's personal income tax credits.

SUMMARY

Connecticut offers seven tax credits that taxpayers may use to reduce their personal income tax liability. All taxpayers up to certain income levels qualify for a personal tax credit. Certain taxpayers may also qualify for another credit based on the federal earned income tax credit and two other credits that offset income taxes paid to other states and jurisdictions and property taxes paid to municipalities and special taxing districts. The other three credits are for business-related activities, specifically, small businesses creating jobs, businesses hiring Connecticut resident with disabilities, and taxpayers investing in eligible start-up companies. Attachment 1 is a table that compares the eligibility criteria and credit limits for each of the credits.

PERSONAL TAX CREDIT

A personal tax credit ranging from 1% to 75% of income tax due is available to all taxpayers up to certain income levels. The credit phases out as Connecticut adjusted gross income (CT AGI) increases, until it is completely eliminated. Table 1 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 (CGS 12-703).

Table 1: Personal Tax Credit

Category of Filer

Qualifies for the Maximum 75% Credit (CT AGI)

No Credit

More than

Less than or Equal to

CT AGI More than

Single

$13,000

$16,300

$ 56,500

Married Filing Separately

$12,000

$15,000

$ 52,500

Head of Household

$19,000

$24,000

$ 78,500

Married Filing Jointly

$24,000

$30,000

$ 100,500

CREDIT FOR INCOME TAXES PAID TO QUALIFYING JURISDICTIONS

Connecticut full- and part-time residents may take a credit against their Connecticut income tax for income taxes paid to another U.S. state, political subdivision, or the District of Columbia on income that is also subject to Connecticut income taxes. To qualify for the credit, the income tax payments made to other jurisdictions must be (1) derived from or connected with sources within the jurisdiction, (2) reported on an income tax return filed with the qualifying jurisdiction, and (3) subject to tax there.

The total credit amount is limited to the lesser of the (1) amount of income tax paid to the qualifying jurisdiction, (2) portion of Connecticut income tax due on the CT AGI income sourced in the qualifying jurisdiction, or (3) taxpayer's Connecticut income tax liability (CGS 12-704).

PROPERTY TAX CREDIT

Connecticut residents may qualify for a credit for property tax paid during the tax year to a Connecticut political subdivision on a primary residence, privately owned or leased motor vehicle, or both. The credit amount depends on the amount of property tax due and paid and the taxpayer's CT AGI. The percent of property tax paid that can be taken as a credit declines as CT AGI increases, until it completely phases out. Beginning with the 2011 tax year, the maximum credit amount, regardless of filing status, is $300. The credit may not reduce a taxpayer's liability to less than zero (CGS 12-704c).

Table 2 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.

Table 2: Property Tax Credit

Category of Filer

Maximum Credit Threshold (CT AGI)

No Credit

(CT AGI >)

Single

$ 56,500

$116,500

Married Filing Separately

$ 50,250

$ 80,250

Head of Household

$ 78,500

$ 138,500

Married Filing Jointly

$ 100,500

$ 160,500

EARNED INCOME TAX CREDIT

Beginning with tax years starting January 1, 2011, Connecticut residents who qualify for, and claim, the federal earned income tax credit (EITC) may qualify for a refundable state EITC equal to 30% of the federal credit for the same tax year. Under federal law, people who work and earn incomes below certain levels qualify for the EITC. Credit amounts vary according to a taxpayer's income and the number of children he or she has (PA 11-6).

For the 2011 tax year, a person qualifies for a federal EITC if he or she has at least $1 of earned income, investment income (with certain exceptions) of $3,150 or less, and a maximum federal AGI of:

1. $13,660 ($18,740 if married and filing jointly) with no children,

2. $36,052 ($41,132 if married and filing jointly) with one child,

3. $40,964 ($46,044 if married and filing jointly) with two children, and

4. $43,998 ($49,078 if married and filing jointly) with three or more children.

Based on the federal EITC for 2011, the maximum state EITC for the 2011 tax year ranges from $139 for filers with no children to $1,725 for filers with three or more children. If the state credit exceeds the taxpayer's state income tax liability, he or she receives the difference as an income tax refund.

CREDITS FOR BUSINESS-RELATED ACTIVITIES

Qualified Small Business and Vocational Rehabilitation Job Creation Tax Credits

Taxpayers may qualify for personal income tax credits for creating new jobs under two separate credit programs. The first program is for small businesses (with 50 or fewer employees) that create new full-time jobs and hire Connecticut residents to fill them (CGS 12-217nn). Each job must require the new employee to work at least 35 hours per week on a regular, full-time basis for at least 48 weeks per calendar year. The second program is for businesses that hire new employees who live in Connecticut and who have a physical or mental impairment that makes it hard for them to find work (CGS 12-217oo). Under this program, the employee must work at least 20 hours per week for at least 48 weeks per calendar year.

The credits are $200 per month for each new employee. Total credits for these two programs and a separate job creation tax credit program cannot exceed $20 million per year. (Tax credits issued for the other job creation tax credit program can only be applied against business taxes.)

The small business credits are only for jobs they create between May 6, 2010 and December 31, 2012, while the vocational rehabilitation credits are for employees hired after May 6, 2010 for the income years beginning on or after January 1, 2010. Businesses must apply to the Department of Economic and Community Development (DECD) commissioner to determine their eligibility for the credits. Businesses must claim the credits for the income year in which they created the jobs and hired the new employees. They may also claim the credits for each of the two subsequent years if the employee held the job for the full year. Businesses may also choose to apply the credits against their insurance premium or corporation tax liability, rather than personal income tax.

Angel Investor Tax Credit

Taxpayers may qualify for income tax credits for investments they make in start-up, technology based businesses in Connecticut (angel investors). To qualify, they must invest at least $100,000 in an eligible business focusing on bioscience, advanced materials, photonics, information technology, clean technology, or an emerging technology. Each credit equals 25% of the cash investment, up to $250,000.

Angel investors must apply to Connecticut Innovations Inc. (CII), which administers the credit program, to reserve a credit. CII may reserve up to $6 million in credits per year in FY 11 through FY 13 and no more than $3 million in FY 14 (CGS 12-704d).

HYPERLINKS

DECD, Qualified Small Business Job Creation Tax Credit Program, http://www.ct.gov/ecd/cwp/view.asp?a=1097&q=463768, last visited August 1, 2011.

DECD, Vocational Rehabilitation Job Creation Tax Credit Program, http://www.ct.gov/ecd/cwp/view.asp?a=1097&q=463744, last visited August 1, 2011.

CII, Connecticut Angel Tax Credit, http://www.ctangeltaxcredit.com/, last visited August 1, 2011.

Attachment 1: Personal Income Tax Credits

Credit

Statutory Citation

Eligibility Criteria

Credit Limit

Other Applicable Taxes

Personal Tax Credit

12-703

Any taxpayer, within specified income levels

1% to 75% of the income tax due, depending on CT AGI

Credit phases out at higher income levels until it is completely eliminated

None

Credit for income taxes paid to qualifying jurisdictions

12-704

Connecticut residents or part-year residents

The lesser of the:

amount of income tax paid to the qualifying jurisdiction,

portion of Connecticut income tax due on income sourced in the qualifying jurisdiction, or

taxpayer's Connecticut income tax liability

None

Property tax credit

12-704c

Connecticut residents

Maximum credit of $300

Credit amount depends on the amount of property tax paid and filer's income

None

Earned income tax credit

PA 11-6

Connecticut residents who qualify for and claim the federal EITC

30% of the federal EITC

None

Qualified small business job creation tax credit

12-217nn

Businesses with fewer than 50 employees in Connecticut that create new jobs filled by Connecticut residents

New employees must work at least 35 hours per week for at least 48 weeks per calendar year

Credit available only for jobs created between May 6, 2010 and December 31, 2012

Three-year, $200 per month per new employee

Total credits for this program and job creation and vocational rehabilitation job credits capped at $20 million per year

Insurance premium

Corporation

Vocational rehabilitation job creation tax credit

12-217oo

Businesses hiring Connecticut residents with disabilities

New employees must work at least 20 hours per week for at least 48 weeks per calendar year

Credits available only for employees hired after May 6, 2010 for income years beginning on or after January 1, 2010

Three-year, $200 per month per new employee

Total credits for this program and job creation and qualified small business job credits capped at $20 million per year

Insurance premium

Corporation

Angel investor tax credit

12-704d

Minimum $100,000 investments in eligible start-up technology-based businesses operating in Connecticut

25% of cash investment up to $250,000

Total annual credits capped at $6 million per year in FY 11-13 and $3 million in FY 14

No new credits may be allocated after June 30, 2014

None

RP:ts