IRS: 51,900 Conn. residents had no taxable income in 2020
Close to 30,000 more Connecticut earners reported no income for federal tax purposes in 2020 compared to the prior year, shedding more light on many people were able to ride out the COVID-19 pandemic supported by the earnings of another family member.
But the data could be distorted by part-timers and gig economy workers who were able to shield their unemployment compensation from normal income taxes in the first year of the pandemic under an American Rescue Plan tax break that allowed people to pocket up to $10,200 in 2020 jobless aid on a tax-free basis.
About 51,900 filers in Connecticut reported no taxable income in 2020, according to a recent Internal Revenue Service report on income across states and tax brackets. That compared to 22,400 Connecticut filers who were in the zero-dollar bracket in 2019 for IRS tax purposes.
Heading into the opening of the 2023 session of the Connecticut General Assembly, lawmakers and executive branch officials have noted many families continue to struggle despite ample job openings, as record inflation hits budgets across rent, food, electricity and other needs.
“Many of our families in our state — hard-working families — are working at or below the poverty level,” said Andrea Barton Reeves, commissioner-designate of the Connecticut Department of Social Services, speaking Wednesday in Hartford.
Connecticut closed out 2022 with just 23,100 people receiving unemployment assistance through federal programs, according to a Thursday update by the U.S. Department of Labor, roughly 7,300 fewer beneficiaries than a year earlier, and far below the totals from prior years.
But as of November, Connecticut trailed only New York among Northeast states with the second-highest rate of people classified as officially unemployed of those actively searching for work, at 4.2 percent of the qualifying workforce.
That was the case despite a historically strong job market that has extended into 2023. More than 20,000 jobs were posted to Indeed in the past two weeks for Connecticut employers and or those just across the border in New York, Massachusetts and Rhode Island.
Connecticut’s median household income was just under $83,600 over five years through 2021, about triple the federal poverty rate of $27,750 for a family of four.
Connecticut saw triple the percentage of households fall into tax brackets below the $75,000 threshold in the pandemic year of 2020, compared to the percentage of earners who jumped into six-digit earnings territory. Statewide, roughly 54,600 filers on a net basis — many of them households filing joint returns — dropped below $75,000 in annual earnings.
That added up to a 4.7 percent increase above the number of people reporting income below $75,000 in 2019, prior to the pandemic layoffs that triggered more than a million claims for unemployment compensation in Connecticut.
Under the American Rescue Act, the Connecticut Department of Labor allowed people to receive an extra $600 weekly in unemployment benefits above the normal allocation of half of one’s recent earnings, or just over $31,000 on an annualized basis. That created a hiring and retention headache for some employers, who indicated they did not have the payroll resources to get some of their sidelined workers back onto the job after furloughs or other changes like reduced hours.
By comparison, only about 5,900 Connecticut households vaulted into tax brackets at $100,000 or more in combined income, for a 1.3 percent gain over 2019. Add in the IRS bracket for middle-class earners making between $75,000 and $100,000, and the total number of households making $75,000 and above rose just 1.6 percent from 2019.
Gov. Ned Lamont has floated the prospect of a small cut in income taxes for those making less than $150,000 annually, as part of the budget package he plans to negotiate with the Connecticut General Assembly, on top of other relief, like a childcare tax credit, a holiday on state gas taxes, utility assistance and free bus service.
Among Connecticut’s wealthiest earners, about 700 additional households were included in the IRS tax bracket for earnings above $1 million, pushing the total to 12,870. Some of the gain could be the result of people who own multiple residences riding out the pandemic largely in Connecticut, rather than spending half the year in New York, Florida or other states which they listed as their primary residences in prior years.