Topic:
PROPERTY TAX; TAX EXEMPTIONS;
Location:
TAX EXEMPTIONS - ELDERLY;

OLR Research Report


February 1, 2008

 

2008-R-0002

MAINE'S CIRCUIT BREAKER PROGRAM

By: John Rappa, Principal Analyst

You asked how Maine's Circuit Breaker Program works.

SUMMARY

Maine directly refunds homeowners and renters for a portion of their property tax or rent payments, respectively, under the Maine Residents Property Tax Program, which is also referred to as the “Circuit Breaker Program” (Me. Rev. Stat. Ann. 36 6201—6220, attached). Different rules apply to elderly and nonelderly households. Those eligible must apply for the refunds to the Administrative and Financial Services Department after August 1 for property taxes paid during the proceeding year. Refunds for homeowners are in addition to the $13,000 in a home's value that the law exempts from property taxes (i.e., homestead exemption).

As the metaphor suggests, circuit breaker programs automatically provide relief when property taxes exceed a predetermined threshold, usually a percent of a taxpayer's income. This is how Maine calculates the refunds for nonelderly households. For elderly households, it compares the refund determined using this method to the refund determined by another method and refunds at the higher amount. The other method determines the refund according to a sliding income scale in which the maximum refunds range from $400 in the lowest income bracket to $100 in the highest.

(Connecticut's circuit breaker program is limited to elderly and totally disabled homeowners who meet annually adjusted income limits. It provides a credit against their property taxes based on a homeowner's income and marital status. The state reimburses towns for their revenue loss (CGS 12-170aa, bb, & cc). Connecticut does not have a homestead exemption but requires towns to assess all real and personal taxable property at 70% of its fair market value.)

PROPERTY TAX REFUND

The program refunds households for a portion of the property taxes they pay. The amount depends on three interrelated factors:

1. whether the household includes elderly or disabled members,

2. whether it owns or rents its dwelling unit, and

3. the household's size and income.

ELDERLY HOUSEHOLDS

As discussed below, the state calculates refunds differently for elderly and nonelderly households. A household qualifies as an elderly household if one of its members is elderly or the member claiming the refund has a disability. A member is elderly if he or she was 62 years or older during the year in which the household claims the refund.

The household could also qualify as elderly if the member claiming the refund is disabled. It automatically qualifies as such if that member is single, receives federal disability payments, and was at least 55 years old during the year for which he or she claims the refund. If the member is married and meets the other conditions, the household qualifies as an elderly household only if the spouse also receives federal disability payments. (The spouse does not have to be 55 years or older.)

BENEFIT BASE

The distinction between elderly and nonelderly households comes into play when determining the “benefit base” or the portion of taxes upon which the state bases the refund. Here, as Table 1 shows, the law distinguishes between homeowners and renters. The base for elderly and nonelderly homeowners is the amount of property taxes the household paid. But the base for renters depends on the household's status. It is a 25% of the rent for elderly renters and 20% for nonelderly renters.

Table 1: Benefit Base for Homeowners and Renters

Benefit Base

For Homeowners:

For Renters:

Property taxes, excluding special assessments and other charges, on the home the household owns and occupies (i.e., the homestead)

Gross rent, excluding utilities, services, and other benefits provided under the lease, on the homestead

Elderly Households: 25% of gross rent

Nonelderly Households: 20% gross rent

Regardless of the household's status or whether the household owns or rents the home, the law caps the benefit base at $3,000 for single-member households and $4,000 for households with two or more members.

HOUSEHOLD CHARACTERISTICS

Elderly Households

The state uses the benefit base to calculate a household's refund. The method for doing so depends on the household's type and income. As Table 2 shows, the refund schedule for an elderly household depends on its size and income. The income ceilings are higher for those households with two or more members.

Table 2: Refund Schedule for Elderly Households

Elderly Households

Single-Member Households

Households with Two or More Members

Income*

% of Benefit Base

Maximum Refund

Income*

% of Benefit Base

Maximum Income

$0-$6,800

100%

$400

$0-$8,100

100%

$400

$6,801-$7,000

75%

300

$8,101-$8,500

75%

300

$7,001-$7,200

50%

200

$8,501-$8,800

50%

200

$7,201-$7,400

25%

100

$8,801-$9,200

25%

100

*The Maine Revenue Services Department annually adjusts the income limits according to statutory criteria.

Nonelderly Households

These households qualify for refunds up to $2,000 when their property taxes exceed 4% of their incomes. The refund equals the half the amount by which the taxes exceed 4% of income, up to 8%, plus the entire amount by which they exceed 8% of income.

For example, assume the household's income was $30,000 and that its property taxes totaled $3,400. The household qualifies for a refund because the taxes exceeded the 4% threshold ($1,200). The state bases the refund on $2,200, which is the difference between the household's property tax payment ($3,400) and the amount by which those taxes exceeded 4% of the household's income ($1,200). The refund equals the total of two calculations:

1. The state first calculates the difference between 4% ($1,200) and 8% ($2,400) of income (i.e., $600) and

2. adds this total to 100% of the tax total that exceeds 8% of income, which is $1,000 (i.e., $3,400 (total taxes) minus $2,400 (8% of income)).

Adding these totals yields a $1,600 refund, which reduces the household's property tax payment from $3,400 to $1,800.

JR:dw