The Register Citizen (Torrington, CT)
New tax confuses state pensioners
After Connecticut mandated withholding a percentage of retirement income for tax purposes starting in January — a measure that appears to have caught many retirees by surprise — Connecticut’s tax authority issued a clarification Tuesday that the requirement does not represent a new tax.
In the 2017 legislative session, the General Assembly enacted a new law requiring payers of retirement benefits to withhold taxes on pension and other retirement income distributions like annuities. The change was included in a larger bill that among other measures shortened to every two years the deadline that merchants must renew their sales tax registrations with the state, as a way for DRS to better police what it estimated has been a $200 million shortfall in sales tax collections annually.
DRS included retirement benefits in the new bill as well, after determining many Connecticut retirees were failing to anticipate adequately the amounts due on that income, and so getting socked with a largerthan-expected bill at the filing deadline.
“This new legislation was enacted months ago, and DRS published guidance back in October,” said DRS Commissioner Kevin Sullivan in a directive Tuesday morning. “Still, it’s clear that this is catching taxpayers by surprise and that is never good.”
Under the new rules, Connecticut resident taxpayers must provide tax withholding instructions via the revised Form CT-W4P to any entity administering their retirement payments, or risk withholding at the highest rate of 6.99 percent. Taxpayers may set their withholding at the amounts they deem sufficient for their planning purposes.
The Internal Revenue Service allows recipients of retirement income to choose not to have withholding applied on their federal taxes, with some exceptions.
Sullivan added DRS “will be more than understanding” for taxpayers and plan administrators in the first year of the new withholding rules. DRS is fielding questions at 800-382-9463 or 860-297-5962, and online at www.ct.gov/drs.
As of the 2014 tax year, Connecticut was one of a dozen states nationally with no exclusions on pension income from employment in the private sector, according to the National Conference of State Legislatures, taxing the full amount of retirement income. The state is among a handful nationally that tax retirement income from other government jobs.
Connecticut offers a full exclusion on Social Security income for individuals with income under $50,000, or joint filers under $60,000; and a 50 percent exclusion from taxation of military retirement benefits.
Over the first four months of the 2018 fiscal year that began this past July, Connecticut income tax withholding amounts were up $78 million to more than $1.2 billion, a 6.8 percent increase from fiscal 2017 and ahead of a 4.9 percent bump from the prior year.