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 one of the highest sales tax at the state level, but local rates are among the lowest. The Nutmeg State also has some of the highest property taxes in the U.S.
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Connecticut Retirement Taxes
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 plenty of trees that are bursting with green from April through September and with dazzling colors 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 and some retirement income is exempted for some seniors. The state has a sales tax that's slightly below the national average, though it's property taxes are some of the highest in the nation.
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Is Connecticut tax-friendly for retirees?
Connecticut is among the least tax-friendly states in the U.S. Unlike most other states, all forms of retirement income, including Social Security, are taxable in Connecticut.
There is an exemption for the Social Security retirement benefits of certain seniors. However, Connecticut may not be affordable for many low-income seniors in the first place, in part because of the state’s high property taxes. The median property tax payment here is $6,096 per year.
Other taxes that make Connecticut a less-than-ideal destination for seniors include the estate tax, which has an exemption of $13.61 million in 2024 (up from $12.92 in 2023).
Is Social Security taxable in Connecticut?
While Social Security income is normally taxed, it is exempted for seniors with adjusted gross income (AGI) below a certain level. Single filers with AGI below $75,000 do not pay taxes on Social Security income. For joint filers, the exemption limit is $100,000. 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?
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 3.00% to 6.99%, as is shown in the table below.
How high are property taxes in Connecticut?
The state’s average effective property tax rate (annual property taxes as a percentage of median home value) is currently 2.15%. Seniors who own a home in Connecticut can expect to spend several thousand dollars a year on property taxes, meaning they 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 single filers. To qualify, claimants must be at least 65 years old.
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 up to 1% in local sales taxes. 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 this tax is $13.61 million in 2024, which is up from $12.92 million in 2023. The tax will not affect any estate with a total value below that amount. Above that amount, however, the rate can go 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.
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 2014 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration