North Central Connecticut Lawmaker: Retirement Tax System 'Unfair'

MANCHESTER, CT — State Rep. Jason Doucette (D-Glastonbury, Manchester) is leading a large bipartisan group of legislators to introduce a bill that would allow more retirement income to be exempt from the state income tax.

HB 5052, which has 59 introducers, would broaden the current deductions for Social Security, pension and annuity income, and individual retirement account (IRA) income to eliminate the current "marriage penalty" and the "cliff" effect in current law for these deductions.

The bill, which is before the Finance, Revenue and Bonding Committee, would amend section 12-701 of the Connecticut General Statutes to replace the current deductions for Social Security, pension and annuity income and distributions with a deduction for such benefits up to $75,000 for an unmarried individual or a married individual filing separately and up to $150,000 for married individuals filing jointly or an individual filing as a head of household. Current law provides qualifying income thresholds of $75,000 for an unmarried individual or a married individual filing separately and $100,000 for married individuals filing jointly or an individual filing as a head of household and only those below the applicable thresholds may take advantage of the deduction.

It also allows all income up to the new limits to be deductible for all filers, thus eliminating the "cliff" effect for those with gross income above the applicable deduction limits.

Finally, it allows deductions for any distribution from IRA accounts to be effective on or after January 1, 2023, in place of the current phase-in schedule that would have run through 2025.

"Over the years, many constituents have mentioned this to me as their top issue affecting the cost of living in Connecticut. Looking at the huge and unprecedented number of my colleagues who have signed on to this bill, it is clear I am not alone", said Doucette, a member of the Finance, Revenue and Bonding Committee and House Chair of the Banking Committee. "This concept is one that I have proposed in some form during each of the past three years and following the progress we made last year to accelerate the previous deduction phase-in and make more retirement income exempt, it is now time to finish the job and make retirement income deductible for all retirees. It is unfair for a couple making $99,000 in retirement income to be completely exempt from taxation while a couple making $101,000 is fully taxed. This bill is a significant step toward making our state more affordable. I ask the Finance, Revenue and Bonding Committee to schedule a hearing on the bill as soon as possible."

Nora Duncan, state director of AARP CT, said: "AARP has heard from many middle-income retirees about this issue in the last few years. They are frustrated and with good reason. They want to make Connecticut their home in retirement but look at their tax bills and wonder if it's feasible. We are optimistic that this is the year we will succeed in eliminating marriage inequities and income tax cliffs and begin treating all retirement income equally."

Michael Barry, Campaign Coordinator for Connecticut Coalition for Retirement Security, added: "The Connecticut Coalition for Retirement Security believes that all workers deserve to retire with dignity and eliminating the tax benefit cliff for retirement benefits will go a long way in keeping retirees in Connecticut. According to the National Institute on Retirement Security (NIRS), each dollar in state and local pension benefits paid to Connecticut residents ultimately supported $1.25 in total output. These revised tax credits would be extremely valuable to all retirees but especially for teachers in Connecticut who do not qualify for Social Security benefits and will not receive the program's death benefits upon the passing of a spouse. We support HB 5052 as a pathway for retirees to maintain basic needs in retirement, for both themselves and their families."

The bill is awaiting action in the Finance Revenue and Bonding Committee.