Attention Connecticut Residents: Tax Changes are Happening

Attention Connecticut Residents: Tax Changes are Happening 

There are two changes that will affect most Connecticut residents. The first is what you pay to Connecticut and the other is what you might pay to the IRS. 

Connecticut Taxes: Several years ago, the CT legislature passed a bill to give relief to residents of CT regarding their income taxes. This year, 2025, is the final year of the phase-in that eliminates or reduces Connecticut income taxes on pensions, IRAs, and other forms of retirement income. However, there is a catch: You must earn less than set thresholds to qualify. According to an internet search, the phase-in of IRA exemptions is part of a larger effort to make Connecticut more attractive for retirees by phasing out the "cliff effect" that previously eliminated exemptions entirely once income thresholds were exceeded. The reduction is: 75% of IRA income (excluding Roth IRAs) will be eligible for a state income tax exemption, provided the taxpayer meets certain Adjusted Gross Income (AGI) thresholds.  
 

AGI Thresholds: 

o    Single filers, married filing separately, and head of household: AGI below $75,000 and phases out completely at $100,000.
o    Married couples filing jointly: AGI below $100,000, phases out at $150,000.

Bottom line: Talk to your tax preparer and consider if you are eligible to reduce your withholding on pension and IRA distributions. Also, when asking for additional lump sum distributions, be sure to consider the potential to exceed the phase-out and cost yourself your CT income tax reduction.  
Federal Taxes: Currently, CT residents itemizing their deductions are limited to $10,000 of income and real estate taxes. This limitation became known as the State and Local Tax (SALT) deduction. At this time, Congress and the Senate are debating increasing the SALT deduction to $40,000 to $60,000 for taxpayers whose income are below limits.  
What it means for you: Stay tuned to a budget bill being passed and how you might benefit. A likely income cap of $400,000 has been discussed. If you earn less than $400,000 and have taxes greater than $10,000, you will have larger deductions in 2025. This could mean a refund next year. However, once again, be careful. If you are near the income limit, pay attention to how much you are taking in additional distributions or let us know to limit your capital gains if possible. 
Please Note:  If you or your tax preparer feel you will qualify for reduced CT income taxes on your IRA distributions, please let our staff know so we can adjust. A simple form may be needed. 

Investment Advisory Services offered through Redhawk Wealth Advisors, Inc. (“Redhawk”), an SEC Registered Investment Advisor. Redhawk and Retirement Visions LLC are unaffiliated and separate legal entities. 
Securities offered through Silver Oak Securities Inc., member FINRA/SIPC. Silver Oak Securities and Redhawk Wealth Advisors, Inc. are separately owned and other entities and/or marketing names, products or services referenced here are independent of Redhawk Wealth Advisors and Silver Oak Securities.