The State of Connecticut has made the following tax law changes for tax year 2023:
- Reduced certain income tax rates: The 3% rate on the first $10,000 earned by unmarried filers and the first $20,000 by couples will decrease to 2%. The 5% rate on the next $40,000 earned by unmarried filers and the next $80,000 earned by couples will decrease to 4.5%. This benefit will be capped at unmarried filers who earn $150,000 and couples who earn $300,000. Applicable to tax years beginning on or after January 1, 2024.
- Increased earned income tax credit (EITC): Legislation increases the EITC from the current rate of 30.5% of the federal credit to 40% of the federal credit.
- Revised subtraction modification for pension and annuity income and IRA distributions: Provided a phase-out for allowable pension, annuity and IRA distribution deductions against personal income tax.
- Subtractions for contributions made by filers into ABLE accounts: This subtraction cannot exceed $5,000 per taxable year for single filers and $10,000 for joint filers. Effective January 1, 2024 and after.
- The end of the Angel Investor Credit: No additional credits will be reserved for investments made in a qualified Connecticut business on or after July 1, 2028 or for any investments made in a qualified cannabis business on or after July 1, 2023.
- Pass-through entity tax: This tax is optional starting with tax years commencing on or after January 1, 2024, an entity that elects to pay such tax must give the Commissioner of Revenue Services written notice for each tax year it makes the election and must do so no later than the due date (or extended due date) for filing the return. Effective January 1, 2024. The legislation also makes the following changes:
- Eliminates the standard base method and instead requires all entities electing to pay the tax to use the alternative base method.
- Requires that the pass-through entity file an income tax return and pay on behalf of any nonresident member for whom the business is the only source of Connecticut income.
- Eliminates the credit against corporation business tax for pass-through entity tax paid be an entity on behalf of a corporation that is a member of said entity and that is subject to the corp. tax.
- Eliminates the option for a pass-through entity to file a combined return with one or more commonly-owned pass-through entities.
You can read more about the changes to Connecticut Tax Law here.