Here’s a quick summary of the tax code updates that may affect your 2021 Connecticut tax return.
New for 2021
New Payroll Tax
A new CT payroll tax went into effect on January 1, 2021. Employees have 0.5% of their wages withheld up to the federal Social Security wage maximum, which is $142,800 for 2021, to fund the new Connecticut Paid Leave program. The mandate provides up to 12 weeks of paid leave for employees to care for themselves or a family member, with benefits beginning January 1, 2022. The maximum weekly benefit as of January 2022 is 60 times the current minimum wage ($13.00), for a maximum benefit of $780 weekly.
CT Earned Income Tax Credit Increased
The Connecticut Earned Income Tax Credit is a refundable state income tax credit for low to moderate income working individuals and families. The state credit mirrors the federal Earned Income Tax Credit. Starting with taxable year 2021, the CT EITC is increased from 23% to 30.5% of the federal credit.
Property Tax Credit Limitation Extended
The limits on eligibility for the property tax credit against the personal income tax have been extended for two years, to the 2021 and 2022 taxable years. To qualify, the taxpayer or their spouse must be 65 years of age or older or claim at least one dependent on their federal return. Connecticut residents who made qualifying property tax payments on eligible property during the tax year can claim a tax credit against their Connecticut income tax liability for that year. The maximum credit amount is $200 per tax return, subject to income phaseouts.
Income Tax Exemption for Teachers’ Pensions
For 2021, a taxpayer is allowed a subtraction modification of 50% of the income received from the Teachers’ Retirement System when calculating CT AGI, to the extent such income has been included in federal AGI for the taxable year.
Subtraction Modification of Pension and Annuity Income
The six-year phaseout of CT income tax on pension and annuity incomes below a certain threshold began in 2019. For 2021, an individual with a federal filing status of single, married filing separately or head of household, with federal AGI for the taxable year of less than $75,000, or married filing jointly with federal AGI of less than $100,000 will be allowed to subtract 42% of any pension or annuity income received for the taxable year when calculating Connecticut AGI. This subtraction modification only applies to the extent that the pension or annuity income has already been properly included in federal AGI. The exemption will rise to 56% for the 2022 tax year.
Taxpayers may not claim the 25% Teachers’ Retirement System income subtraction modification and the 42% pension and annuity income subtraction modification for the same income. However, if a taxpayer filing an individual return or a joint return has income from the Teachers’ Retirement System and income from a pension or annuity that qualifies for the pension or annuity subtraction modification, then the taxpayer may claim both modifications.
Other Items to Note
Need a Copy of Your Previous Return?
You can obtain a copy of your past CT individual and business tax returns for free using the CT Taxpayer Service Center.
Schedule early. Our calendar fills up fast as people begin to receive their W-2s. Take the stress out of filing by calling us as soon as you have your documents together. Leave yourself time before the April 15th deadline to catch and sort out any issues that arise. By filing earlier, you get your refund faster or have more time to pay what you owe and help protect any refund from identity thieves.