Location:
TAXES - INCOME;
Scope:
Background;

OLR Research Report


November 8, 2011

 

2011-R-0379

INCOME TAX RATES IN CONNECTICUT AND SURROUNDING STATES

By: Judith Lohman, Assistant Director

You asked for the personal income tax rates in Connecticut, Massachusetts, New Jersey, New York, and Rhode Island. The tax rate information in this report comes from CCH's State Tax Guide and each state's tax department website.

SUMMARY

Of the five states, Connecticut, New Jersey, New York, and Rhode Island have income taxes structured with multiple income brackets taxed at progressively higher marginal rates. Massachusetts is the only one of the five that imposes a flat income tax with two rates (5.3% and 12%) that apply based on the category, rather than the amount, of taxable income. Rhode Island's tax is comparatively flat with only three brackets and a top rate of 5.99% applicable to all taxable income over $125,000.

Of the three states with more progressive rate structures, New Jersey and New York have the highest top rates (8.97%), both applicable to taxable income over $500,000. Connecticut's top rate is 6.7%, applicable to taxable incomes over $500,000 for joint filers, $250,000 for singles and married couples filing separately, and $400,000 for heads of household. As of January 1, 2012, New York is scheduled to drop its two current top brackets and return to its flatter pre-2009 structure with a top rate of 6.85% applicable to taxable income over $40,000 for joint filers, $20,000 for singles and married couples filing separately, and $30,000 for heads of household.

Although Connecticut's new top rate (effective January 1, 2011) is lower than both New Jersey's and New York's current top rates, Connecticut's tax is the only one that phases out its lowest rate for higher-income taxpayers, resulting in more of their income being taxed at an initial marginal rate of 5% rather than 3%. Connecticut also requires taxpayers whose Connecticut adjusted gross income (CT AGI) exceeds certain thresholds to “recapture” or add back to their overall tax liability all or part of the benefits they receive from lower marginal rates on income not subject to the top rate. New York has a similar recapture requirement, but it is temporary and scheduled to end after the 2011 tax year.

CONNECTICUT

Rates

Table 1 shows Connecticut's personal income tax rates effective with tax years starting on or after January 1, 2011.

TABLE 1: CONNECTICUT INCOME TAX RATES

TAX RATE

CONNECTICUT TAXABLE INCOME

Married Filing Jointly

Single/ Married Filing Separately

Head of Household

Over

But Not Over

Over

But Not Over

Over

But Not Over

3.0%

$0

$20,000

$0

$10,000

$0

$16,000

5.0%

20,000

100,000

10,000

50,000

16,000

80,000

5.5%

100,000

200,000

50,000

100,000

80,000

160,000

6.0%

200,000

400,000

100,000

200,000

160,000

320,000

6.5%

400,000

500,000

200,000

250,000

320,000

400,000

6.7%

Over $500,000

Over $250,000

Over $400,000

Other Provisions Affecting Connecticut Tax Rates

Phase-out of 3% bracket. Connecticut's income tax law phases out the lowest (3%) income tax bracket for taxpayers with higher CT AGI. It does so by gradually expanding the 5% tax bracket and shrinking the 3% one until the latter disappears and all taxable income below the 5.5% threshold is taxed at 5%.

The 3% bracket phase-out threshold is CT AGI over $100,500 for joint filers, $56,500 for singles, $78,500 for heads of household, and $50,250 for married couples filing separately. Taxpayers lose the benefit of the 3% marginal rate entirely if they have CT AGI over $145,500 for joint filers, $101,500 for singles, $114,500 for heads of household, and $72,250 for married couples filing separately. For such taxpayers, the lowest marginal rate is 5%. Table 1A shows the phase-out steps.

TABLE 1A: CT 3% BRACKET PHASE-OUT

 

Married Filing Jointly

Single

Head of Household

Married Filing Separately

Phase-Out Starting Point: CT AGI over

$100,500

$56,500

$78,500

$50,250

Reduction in taxable income subject to 3% rate

$2,000 per $5,000 of CT AGI over starting point

$1,000 per $5,000 of CT AGI over starting point

$1,600 per $4,000 of CT AGI over starting point

$1,000 per $1,000 of CT AGI over starting point

3% Rate Eliminated: CT AGI over

$145,500

$101,500

$114,500

$72,250

Recapture. For taxpayers whose CT AGI exceeds specified thresholds, the law imposes a “recapture” provision to eliminate the benefit they receive from having a portion of their taxable income taxed at lower marginal rates. It does so by requiring taxpayers with higher incomes to add back specified amounts to their tax liability. These “recapture” amounts phase in as CT AGI increases, until 100% of a taxpayer's taxable income is effectively taxed at the highest marginal rate (6.7%).

Taxpayers with CT AGI above the following levels are affected by the recapture provision: $400,000 for married filing jointly, $200,000 for singles and married couples filing separately, and $320,000 for heads of household. Table 1B shows, for each type of filer, the CT AGI starting point for the recapture phase-in, the AGI phase-in intervals and the recapture amount to be added at each interval, and the maximum total recapture amount to be added once CT AGI reaches the fully phased-in level.

TABLE 1B: CT BENEFIT RECAPTURE PHASE-IN

 

Married Filing Jointly

Single/ Married Filing Separately

Head of Household

Phase-In Starting Point: CT AGI over

$400,000

$200,000

$320,000

Recapture Amount

$150 per $10,000 of CT AGI over starting point

$75 per $5,000 of CT AGI over starting point

$120 per $8,000 of CT AGI over starting point

Maximum Total Recapture Amount

$4,500

$2,250

$3,600

MASSACHUSETTS

The Massachusetts income tax has two flat rates. The applicable rate depends on the type of taxable income, as shown in Table 2.

TABLE 2: MASSACHUSETTS INCOME TAX RATES

TAX RATE

MASSACHUSETTS TAXABLE INCOME

12.0%

Short-term capital gains:

Capital gains on assets held for one year or less

Capital gains on sale of property used in a trade or business and held for one year or less

Gains on sales of collectibles

5.3%

Other taxable income

NEW JERSEY

New Jersey's income tax rates are shown in Table 3. New Jersey has two sets of tax brackets for two types of filers. Joint filers and heads of household have one more bracket than single filers and married couples filing separately.

TABLE 3: NEW JERSEY INCOME TAX RATES

TAX RATE

MARRIED FILING JOINTLY/HEAD OF HOUSEHOLD

TAX RATE

SINGLE/MARRIED FILING SEPARATELY

NJ TAXABLE INCOME

NJ TAXABLE INCOME

Over

But Not Over

Over

But Not Over

1.4%

$0

$20,000

1.4%

0

20,000

1.75%

20,000

50,000

1.75%

20,000

35,000

2.45%

50,000

70,000

3.5%

35,000

40,000

3.5%

70,000

80,000

5.525%

40,000

75,000

5.525%

80,000

150,000

6.37%

75,000

500,000

6.37%

150,000

500,000

8.97%

Over $500,000

8.97%

Over $500,000

NEW YORK

New York's income tax rates are currently scheduled to change starting with the 2012 tax year. The state's three-year temporary tax increase on higher-income taxpayers will expire on December 31, 2011. Table 4A shows New York's current income tax rates. Table 4B shows the rates scheduled to go into effect for tax years starting on or after January 1, 2012.

Current Rates

TABLE 4A: NEW YORK INCOME TAX RATES

2009-2011 Tax Years

TAX RATE

NEW YORK TAXABLE INCOME

Married Filing Jointly

Single/ Married Filing Separately

Head of Household

Over

But Not Over

Over

But Not Over

Over

But Not Over

4.0%

$0

$16,000

$0

$8,000

$0

$11,000

4.5%

16,000

22,000

8,000

11,000

11,000

15,000

5.25%

22,000

26,000

11,000

13,000

15,000

17,000

5.9%

26,000

40,000

13,000

20,000

17,000

30,000

6.85%

40,000

300,000

20,000

200,000

30,000

250,000

7.85%

300,000

500,000

200,000

500,000

250,000

500,000

8.97%

Over $500,000

Over $500,000

Over $500,000

For higher-income taxpayers, New York imposes a recapture provision to eliminate benefits they receive by having part of their taxable income taxed at lower marginal rates. The recapture provision expires after the 2011 tax year. It applies to:

taxpayers with NY AGI over $300,000 who have NY taxable income taxed at 7.85% (the second-highest rate), and

all taxpayers with NY AGI over $500,000.

Rates for 2012 and Subsequent Tax Years

TABLE 4B: NEW YORK INCOME TAX RATES

Tax Years 2012 and After

TAX RATE

NEW YORK TAXABLE INCOME

Married Filing Jointly

Single/ Married Filing Separately

Head of Household

Over

But Not Over

Over

But Not Over

Over

But Not Over

4.0%

0

$16,000

$0

$8,000

$0

$11,000

4.5%

16,000

22,000

8,000

11,000

11,000

15,000

5.25%

22,000

26,000

11,000

13,000

15,000

17,000

5.9%

26,000

40,000

13,000

20,000

17,000

30,000

6.85%

Over $40,000

Over $20,000

Over $30,000

RHODE ISLAND

Table 5 shows Rhode Island's income tax rates. Rhode Island's tax has one set of brackets for all filers, regardless of filing status.

TABLE 5: RHODE ISLAND

TAX RATE

RHODE ISLAND TAXABLE INCOME

Single/Married Filing Jointly/ Married Filing Separately/ Head of Household

Over

But Not Over

3.75%

0

$55,000

4.75%

55,000

125,000

5.99%

Over $125,000

JL:ts