OLR Bill Analysis

sHB 5433



This bill makes various unrelated changes in state tax laws. The bill:

1. modifies the method used to determine the amount of income tax withholding from pension and annuity payments ( 7);

2. makes permanent the income tax exemption for pension and annuity income for eligible taxpayers, currently scheduled to phase in from the 2019 through 2025 tax years and end after 2025 ( 27);

3. expands the types of transactions subject to an existing penalty for income tax underpayments attributable to a taxpayer's failure to disclose potentially abusive tax avoidance transactions ( 5 & 6);

4. explicitly authorizes the DRS commissioner to use electronic signatures for any filing authorized under the law concerning liens on personal property for delinquent state taxes (i.e., Uniform Commercial Code filings)( 1);

5. clarifies that taxpayers issued a Green Building tax credit prior to the program's sunset date (December 1, 2017) may claim the credits ( 2);

6. eliminates a requirement that the DRS commissioner notify the comptroller of any errors in insurance premiums tax returns that are disclosed during his examination of the returns ( 3);

7. limits succession tax filing requirements to the estates of decedents who died on or before January 1, 2005, that filed a succession tax return or were assessed succession tax before October 1, 2018 (existing law eliminates the tax for the estates of decedents who died on or after January 1, 2005)( 4); and

8. makes numerous technical changes and corrections ( 8-26 & 28-33).

EFFECTIVE DATE: Upon passage, except the technical changes and corrections (excluding corrections to an estate and gift tax rate calculation) are effective October 1, 2018.


Payers Subject to the Withholding Requirement

Current law requires income tax withholding by payers of pension and annuity distributions that (1) maintain an office or transact business in Connecticut and (2) make taxable payments to resident individuals. The bill specifies that the withholding requirement applies to any such payers that make distributions (1) from a profit-sharing plan, stock bonus, deferred compensation plan, individual retirement arrangement, endowment, or life insurance contract or (2) of pension payments or annuities. Under current law, the pension or annuity distributions subject to withholding include these distribution types.

Withholding Amount

The bill requires the method used to determine the amount of income tax withholding to be determined according to instructions the DRS commissioner provides, rather than be the same as the method employers use for payroll withholding.

Under current law, lump sum distributions must be taxed at the highest marginal rate. The bill instead requires the amount withheld from lump sum distributions to be equal to the distribution's taxable portion multiplied by the highest marginal rate. Additionally, it exempts from withholding lump sum distributions that are direct rollovers in the form of a check made payable to another qualified account. As under existing law, a lump sum distribution is also exempt from withholding if any portion of it was previously taxed or it is a rollover effected as a direct trustee-to-trustee transfer. 

The bill also provides that the withholding requirements must not result in the nonpayment of any distribution to a resident individual.

Penalty for Estimated Income Tax Underpayment

Beginning with the 2018 calendar year, the bill prohibits the DRS commissioner from assessing interest on taxpayers for underpaying estimated taxes based solely on the payer's failure to comply with the withholding requirements.


By law, a separate penalty applies to state personal income tax underpayments attributable to a taxpayer's failure to disclose transactions on his or her federal tax return (as required under federal law) that the Internal Revenue Service has determined are potentially abusive tax shelters. The penalty is 75% of the underpayment.

For income tax audits beginning on or after January 1, 2018, the bill applies the underpayment penalty to the taxpayer's failure to disclose a “reportable transaction,” rather than a “listed transaction.” Under federal law, a “reportable transaction” is one required to be disclosed because the IRS has determined, under its regulations, that it is potentially a tax avoidance or evasion transaction. A “listed transaction” is a reportable transaction that is the same as, or substantially similar to, a type of tax avoidance transaction. Reportable transactions also include other specified transaction types, including confidential transactions (i.e., transactions offered to a taxpayer under conditions of confidentiality and for which the taxpayer has paid a minimum advisor fee) and loss transactions (i.e., certain losses, including individual losses of at least $2 million in a single tax year or $4 million in any combination of tax years).


The bill makes permanent the personal income tax deduction for pension and annuity income which is currently scheduled to phase out from the 2019 to 2025 tax years, and end after 2025. Under the bill, eligible taxpayers may deduct 100% of such income for tax years beginning in 2025, and each tax year thereafter. By law, the deduction applies to taxpayers with federal adjusted gross incomes below (1) $75,000 for single filers, married people filing separately, and heads of households and (2) $100,000 for married people filing jointly. 

Related Bills

sSB 10 and sSB 414, favorably reported by the Finance, Revenue and Bonding Committee, contain identical provisions that make permanent the personal income tax deduction for pension and annuity income.


Finance, Revenue and Bonding Committee

Joint Favorable Substitute