No one likes paying taxes. If there are any methods you can use to save on your tax obligations, then you likely want to know about them. Thankfully, there are some very specific tax savings opportunities for those who live in Connecticut and pay income tax here.
A Few Basics About CT State Income Taxes
In addition to paying income tax at the federal level, Connecticut has a state income tax as well. While Connecticut has income tax rates on the higher end compared to other states, there are no local income taxes, unlike many states.
Income tax rates in Connecticut vary from 3% to 6.99% for the 2019 and 2020 tax filing season. Many mid-income level homes will pay tax rates of around 5% to 5.5%, in addition to the federal tax rates.
Potential Tax Credits for Connecticut Filers
Many of the tax credits available to CT residents have precise requirements and only apply in some situations. Below are just a few credits available that you may qualify to receive.
1. CT Real Property Tax Credit
The property tax credit is available to filers who are over the age of 65 and/or have at least one dependent that they claim on their Connecticut tax return. Although single filers were once eligible for this tax credit in the past, that is no longer the case.
The credit is for up to $200 of property tax paid on a primary residence or motor vehicle during the year. It varies based on your filing status and income. This tax credit may phase out when your CT income is above certain levels.
2. Personal Tax Credits
Depending on your income level, you may also qualify to offset some of your tax obligations in CT. The credit is designed to be for low- and moderate-level income filers, and it can be between 1% and 75% of your tax bill. As your income goes up, then the credit will decrease.
The credit does not apply to anyone that has an adjusted gross income of over $64,500 for single people, $100,500 for married filing jointly or qualifying widowers, $52,500 for married filing separately, and $78,500 for those filing as head of household.
3. Earned Income Tax Credit
If you meet the criteria for the Earned Income Tax Credit on your federal tax return, you will also likely qualify for Connecticut’s EITC as well. This extra credit can be up to 23% of what your credit was on your federal return.
4. Section 529 Deductions
Connecticut offers one of the highest deduction rates for Section 529 college savings plans. The Connecticut Higher Education Trust (CHET) gives parents a way to save for their children’s college education by using this tax-favored plan.
Single taxpayers may deduct up to $5,000 in contributions, and those who file married filing jointly can claim up to $10,000 for the deduction. For some filers, that could mean a tax savings of roughly $700 ($350 per person). If there is an over-contribution in one year, parents can carry forward that contribution to the following year to deduct it then, as well. The deduction’s limit is not related to the number of dependents you may have, but your filing status.
5. Business Tax Credits
If you own or run a business, you may also want to consider many of Connecticut’s tax deductions for companies. Many of the credits focus on encouraging growth, research and development, and investment within the state. For example, you can get a tax credit for being an “angel investor” who invests at least $25,000 in a qualifying startup. Other potential business credits include, but may not be limited to:
- Digital media and motion picture tax credits
- Urban or industrial site reinvestment credits
- Digital animation production company credits
- Credits associated with small business loans and financing
- Job creation credits
- Fixed capital investment credits
Businesses should review potential credit options before making large purchases or investments. Having the right tax deduction can help your company expand or grow even more than initially anticipated in some situations.
Getting the Most Out of Your Connecticut Deductions and Credits
If you are exploring additional ways to reduce your tax obligations in Connecticut, contact our office. We can help answer questions about potential credits and deductions and help you take advantage of every tax savings option you are entitled to receive. For a consultation, call our Meriden office at 203-634-7549 or our Madison office at 203-318-1488.