Connecticut requires people to pay state income tax if they have a connection to the state. This includes residents, people working in the state, and those with Connecticut wages withheld from their paychecks. The state also taxes people who have Connecticut property tax liability. In addition, the state offers a variety of tax deductions and credits that reduce state income tax liability. The state’s top tax bracket is 6.99%, and it has one of the highest cigarette taxes in the country. Additionally, the state charges an excise tax on liquor and wine.
Taxes are often the biggest expense individuals face, so it’s important to understand how they fit into your financial plan. A financial advisor can help you understand your state’s tax rates and how they may affect your savings and investment strategies. SmartAsset’s free tool matches you with vetted advisors in your area.
How to Calculate Your Connecticut Income Tax?
When it comes to calculating your state income tax in Connecticut, you must keep in mind that there are several factors to consider. First, you must determine your gross income. This includes all income you receive, including 401(k) and other retirement accounts and Social Security benefits. It also includes dividends and interest.
Your gross income will be subject to a variety of taxes, including federal, state and local taxes. State taxes vary from three to 6.99 percent, and local taxes may also be levied by municipalities.
Connecticut State Income Tax Deductions
Many states offer tax deductions, but Connecticut typically employs tax credits instead of tax deductions. These include the Personal Exemption, Earned Income Credit, and Property Tax Credit. These credits reduce the taxpayer’s tax liability dollar for dollar, unlike deductions that only decrease taxable income. In addition, the state offers a 25% Angel Investor Credit for investors who contribute $25,000 or more to a qualifying small business in Connecticut.
The state’s budget includes three significant tax relief measures that will go into effect January 1, 2024. These include the largest income tax reduction ever enacted in Connecticut history, an increase in a tax credit targeting the lowest-income workers, and expanded exemptions on certain pension and annuity earnings to benefit seniors.
In addition, the budget expands the Connecticut earned income tax credit (EITC), which combines with federal EITC credits to provide significant benefits for low-income working families. The new law also eliminates the state’s pass-through entity (PTE) tax surcharge, effective for PTEs with Connecticut revenue of $1,000 or more in 2024.
Unlike many states, which use deductions to reduce taxable income, Connecticut uses credits that are applied to the total tax liability. Since most people pay their taxes through income withholding, the tax cuts should begin to take effect this month in the form of a few extra dollars in paychecks.