November 17, 2010
DISABLED VETERAN PROPERTY TAX EXEMPTION
By: Kevin E. McCarthy, Principal Analyst
You asked whether the statutes set tighter income criteria for property tax relief for veterans with a 100% disability rating than for veterans who are partially disabled. If this is the case, you propose to address this apparent discrepancy and ask us how this could be done legislatively.
Part of the property tax relief provided to veterans (commonly called the additional exemption) can have a tighter income restriction for a veteran with a 100% disability rating than one who is partially disabled or not disabled, due to differences in what counts as income. The legislature could (1) impose the same income limit for all veterans for this exemption, (2) set a higher income limit for those veterans who are completely disabled, or (3) automatically make totally disabled veterans eligible for the circuit breaker program, which has higher income limits than currently apply to veterans with a 100% disability rating.
OLR report 2008-R-0627 provides additional information on exemptions for disabled veterans.
By law, the state must reimburse municipalities for the revenue they lose as a result of the additional exemption and the circuit breaker program. If the legislature expanded income limits for totally disabled veterans under current law but did not appropriate additional funds for this reimbursement, it would create an unfunded municipal mandate.
DISABLED VETERAN PROPERTY TAX EXEMPTION
The law provides for a basic exemption that varies depending on the extent to which a veteran is disabled. CGS Sec. 12-81(19) provides a basic $1,000 property tax exemption for veterans who served in time of war. CGS § 12-81(20) provides a larger basic exemption for veterans with a Veterans Administration (VA) disability rating of 10% or more. The exemption is (1) $1,500 if the disability rating is 10% to 25%, (2) $2,000 if the disability rating is 25% to 50%, (3) $2,500 if the disability rating is 50% to 75%, and (4) $3,000 if the disability rating is above 75% or if the veteran is 65 or older. CGS § 12-81(21) provides a $10,000 exemption for veterans with severe service-connected disabilities, e.g., paraplegia, hemiplegia, or total blindness. (CGS § 12-62g requires municipalities to increase these exemption levels when they revalue property, to reflect increases in their net taxable grand lists.) The above exemptions apply regardless of the veteran's income.
Under CGS § 12-81g(a), veterans whose income falls below a specified limit are entitled to an additional exemption that is twice the basic exemption described above. Under CGS § 12-81g(b), veterans whose income exceeds the statutory limits are entitled to an additional exemption of 50% of the basic exemption.
For veterans with a 100% VA disability level, the limit is a federal adjusted gross income (AGI) of $18,000 for unmarried veterans and $21,000 for married veterans. In most cases, the Social Security benefits of a veteran eligible for the property tax exemption do not count towards his or her AGI.
For partially disabled and non-disabled veterans, the income limit is set by CGS §§ 12-81l and 12-170aa (the latter is the circuit breaker program). The limit is adjusted annually for inflation and is currently $32,300 for unmarried veterans and $39,500 for married veterans. The veteran's total income, except veterans' disability payments, counts towards the limit whether it is taxable or not.
In many cases, a 100% disabled veteran faces a tighter income limit for the additional exemption provided under CGS § 12-81g(a) than one with a lesser disability or no disability, due to differences in what counts towards the income limit. For example, an unmarried veteran without a disability could have an AGI of $20,000 and $10,000 in tax-exempt Social Security benefits and qualify for the additional exemption because his total income is below the $32,300 limit, while a veteran with a 100% disability rating and the same income would not because his AGI is above the $18,000 limit. On the other hand, an unmarried veteran with a 100% disability rating, an AGI of $18,000, and tax-exempt income of $15,000 would be eligible for the additional exemption, while other veterans with the same income would not be eligible.
Use Same Income Limits for All Veterans
The legislature could choose to apply the same income limits for the additional exemption for veterans with a 100% disability rating as currently apply to other veterans. This could be done by deleting the clause in CGS § 12-81g(a) that refers to veterans with 100% disability ratings. While this would generally increase the number of totally disabled veterans who would be eligible for the additional exemption, it could make some veterans who currently get the exemption ineligible. This could happen in cases such as unmarried veteran with an AGI of $18,000 and tax-exempt income of $15,000.
Adopt Higher Income Limits for Totally Disabled Veterans
Alternatively, the legislature could set a higher income limit for veterans with a 100% VA disability rating. When CGS § 12-81l was adopted in 1987, the income limit for the additional exemption for veterans with 100% disability ratings was approximately 30% higher than the limit for other veterans, but has not been raised since then. On the other hand, the income limits for other veterans have increased over time since they are tied to the circuit breaker program, which is indexed to inflation. The legislature could set the income limit for veterans with 100% disability ratings as (1) a specified percentage (e.g., 30%) over the income limit for other veterans, (2) a flat amount (e.g., $5,000) over this limit, or (3) a flat amount adjusted annually for inflation.
Make Totally Disabled Veterans Automatically Eligible for the Circuit Breaker Program
The legislature could qualify all veterans with a 100% VA disability rating for circuit breaker benefits. The circuit breaker program (CGS § 12-170aa) provides property tax relief for low and moderate income homeowners who are 65 or older or who “permanently and totally disabled.” The program reduces the property tax bill of (1) eligible married homeowners by 10% to 50% and (2) eligible unmarried homeowners by 10% to 40%, in both cases depending on their income. As noted above, the current income levels for this program are $32,300
for unmarried homeowners and $39,500 for married homeowners. The circuit breaker benefit can be more or less valuable than the veteran's additional exemption, depending on the veteran's specific circumstances.
To be considered permanently and totally disabled, the homeowner must be (1) eligible to receive permanent and total disability benefits under Social Security or (2) ineligible to receive Social Security benefits, but qualified to receive permanent disability benefits under other federal, state, or local retirement or disability programs. Under current law, a veteran with a 100% VA disability rating does not necessarily meet these criteria, since the VA and Social Security have different disability rating systems. The legislature could amend CGS § 12-170aa(b) to expand the definition of “permanently and totally disabled” to include a veteran with a 100% VA disability rating.