What Connecticut’s State Tax Changes Mean for Your 2024 Return

As we approach the 2024 tax season, it’s important for Connecticut residents and businesses to be aware of several key tax changes that could impact their upcoming state tax filings. These changes, passed in 2024, aim to provide some financial relief while ensuring continued state revenue. Below is a summary of what’s new and what you need to know as you prepare to file your 2024 Connecticut tax return by April 15, 2025.

Key Changes to Personal Income Tax Rates

Starting January 1, 2024, Connecticut reduced its personal income tax rates for the two lowest brackets:

2% Tax Rate: Applies to the first $10,000 of taxable income for single filers and the first $20,000 for joint filers, down from 3%.
4.5% Tax Rate: Applies to taxable income more than $10,000 up to $50,000 for single filers, and more than $20,000 up to $100,000 for joint filers, down from 5%.

This change is expected to benefit nearly 1 million taxpayers, offering significant savings on your 2024 return. To take full advantage, double check any payroll withholdings to ensure they reflect these new rates.

Expanded Earned Income Tax Credit (EITC)

For tax year 2024, Connecticut increased its EITC from 30.5% to 40% of the federal credit. If you qualify, this enhanced credit could result in a larger refund. Make sure to gather all necessary documentation to claim the EITC, if eligible.

New Benefits for Retirees

Connecticut increased its relief for retirees by expanding exemptions on certain pension and annuity income in 2024. If you receive qualifying retirement income, you may see a reduction in how much of it is taxable, lowering your overall tax bill.

Optional Pass-Through Entity (PTE) Tax

Businesses structured as pass-through entities, such as S-corporations or partnerships, now have the option to elect PTE tax treatment for 2024, which gives business owners greater flexibility in managing tax liability. If you operate a pass-through entity, talk to us about whether making this election is right for your business.

Corporate Surcharge Extension

The 10% corporate surcharge has been extended through income years beginning before January 1, 2025. This surcharge applies to businesses with annual gross income of $100 million or more or those filing unitary returns.

Withholding Changes for Retirement Distributions

Effective January 1, 2025, Connecticut will no longer require mandatory withholding on certain pension and annuity distributions, unless requested by the recipient. Keep this in mind if you’re adjusting your withholding preferences for the coming year.

Sales and Use Tax Exemptions

The state has expanded sales and use tax exemptions for purchases related to the Capital Region Development Authority (CRDA) and the XL Center, effective July 1, 2024. Businesses operating in these sectors should ensure they apply the exemptions where appropriate.

What You Need to Do to Prepare

Review Your Tax Situation: If your income level places you in one of the lower tax brackets, you can expect to pay less in state income tax. Double-check your payroll withholdings to avoid underpayment penalties or over-withholding.
Gather Relevant Documentation: Whether you’re claiming the EITC, retirement income exemptions, or other credits, ensure you have the appropriate forms and records ready when filing your return.
Plan for Business Tax Changes: If you operate a pass-through entity or a large corporation, consult with us to determine how these changes affect your filing and whether any elections should be made.
Stay Compliant: For businesses, it’s crucial to understand the updated sales tax exemptions, corporate surcharges, and other regulatory changes to ensure proper reporting and compliance.