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Connecticut Retirement Tax Friendliness

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Overview of Connecticut Retirement Tax Friendliness

All types of retirement income are subject to Connecticut’s income tax, although Social Security is exempted for some seniors. The state has a sales tax near the national average and some of the highest property taxes in the U.S.

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Connecticut Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

There are a lot of reasons a retiree might choose to live in Connecticut. It is spotted with charming New England towns that can offer a peaceful and pleasant lifestyle.

The state experiences four seasons and has a plentitude of trees which are bursting with green from April through September and with dazzling fall color come October. The Connecticut coastline stretches for 100 miles along the Long Island Sound, which keeps wave heights low (and perfect for boating!). Yet, for seniors who are concerned about their tax bill, Connecticut is among the worst states for retirement.

All types of retirement income are subject to Connecticut’s income tax, although Social Security is exempted for some seniors. The state has a sales tax near the national average and some of the highest property taxes in the U.S. Overall, the cost of living in Connecticut is 35% higher than the national average. Below, we’ll look at the details on just what makes Connecticut so tax-unfriendly for retirees.

Is Connecticut tax-friendly for retirees?

No. In fact, it is among the least tax-friendly states in the U.S. Unlike most other states, all forms of retirement income are taxable in Connecticut, including Social Security.

There is an exemption for the Social Security retirement benefits of low-income seniors but Connecticut may not be affordable for many low-income seniors, in part because of the state’s high property taxes. The median property tax payment in the Nutmeg State is over $5,000 per year.

Other taxes that make Connecticut a less-than-ideal destination for seniors include the estate tax, which has an exemption of $2 million. That is less than half the federal exemption.

Is Social Security taxable in Connecticut?

Yes, but it is exempted for seniors with Adjusted Gross Income (AGI) below a certain level. Single filers with AGI below $50,000 do not pay taxes on Social Security income. For joint filers, the exemption limit is $60,000 in AGI. For all other taxpayers, Social Security is taxed (along with other sources of income) at Connecticut’s normal income tax rates, which are shown in the table in the next section.

Are other forms of retirement income taxable in Connecticut?

Yes. Income from public employee pensions, private company pensions and retirement savings accounts are all taxed as regular income.

So, for example, if you are relying on withdrawals from your 401(k) to finance your retirement, keep in mind that you will pay income taxes annually on those withdrawals. Tax rates in Connecticut range from 3% to 6.7%, as shown in the table below.

Income Tax Brackets

Single Filers
Connecticut Taxable IncomeRate
$0 - $10,0003.00%
$10,000 - $50,0005.00%
$50,000 - $100,0005.50%
$100,000 - $200,0006.00%
$200,000 - $250,0006.50%
$250,000 - $500,0006.90%
$500,000+6.99%
Married, Filing Jointly
Connecticut Taxable IncomeRate
$0 - $20,0003.00%
$20,000 - $100,0005.00%
$100,000 - $200,0005.50%
$200,000 - $400,0006.00%
$400,000 - $500,0006.50%
$500,000 - $1,000,000,0006.90%
$1,000,000,000+ 6.99%
Married, Filing Separately
Connecticut Taxable IncomeRate
$0 - $10,0003.00%
$10,000 - $50,0005.00%
$50,000 - $100,0005.50%
$100,000 - $200,0006.00%
$200,000 - $250,0006.50%
$250,000 - $500,0006.90%
$500,000+6.99%
Head of Household
Connecticut Taxable IncomeRate
$0 - $16,0003.00%
$16,000 - $80,0005.00%
$80,000 - $160,0005.50%
$160,000 - $320,0006.00%
$320,000 - $400,0006.50%
$400,000 - $800,0006.90%
$800,000+6.99%

How high are property taxes in Connecticut?

Very high. The state’s average effective property tax rate (annual property taxes as a percentage of median home value) is eighth highest in the U.S. at 1.83%. Seniors who own a home in Connecticut can expect to spend several thousand dollars a year on property taxes and should budget accordingly.

What is the Connecticut property tax circuit breaker?

The Connecticut property tax circuit breaker is a credit available to seniors who own and occupy their home in Connecticut. It is worth up to $1,250 for married couples or $1,000 for individuals. To qualify, claimants must be at least 65 years old. Married claimants must have income of no more than $39,500 per year. For single claimants the ceiling is $32,300.

Photo credit: ©iStock.com/DenisTangneyJr

How high are sales taxes in Connecticut?

There’s some good news for seniors in Connecticut here. The state has a single statewide sales tax of 6.35% and no local sales taxes. That means the overall sales tax burden actually rates in the bottom half of U.S. states. Furthermore, groceries in Connecticut are exempt from sales tax.

What other Connecticut taxes should I be concerned about?

Seniors who are planning for the settlement of their estate and intend to bequeath property or wealth to their friends and family should be aware of Connecticut’s estate tax. The exemption for that tax is $2 million, well below the exemption for the federal estate tax. Any estate with a total value below that amount will not be affected by the tax. Above that amount, however, rates range from 7.2% up to 12%.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2015 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration

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