Connecticut for retirees: exempt below the line, taxed above it

Connecticut’s treatment of retirement income turns on one number: federal adjusted gross income, line 11 of the federal return. Below $75,000 for a single filer or $100,000 for a joint return, every dollar of Social Security, pension, annuity, 401(k), 403(b), 457 and traditional IRA income that was taxed federally is subtracted on Schedule 1 of Form CT-1040, and most such retirees owe Connecticut nothing. Above those lines, the pension and IRA subtraction phases down in steps and is gone at $100,000 single or $150,000 joint, and Social Security stays partly exempt: no more than 25% of the benefits can be taxed. There is no age test anywhere in this. A 55-year-old drawing a pension gets the subtraction; a 75-year-old with $110,000 of federal AGI does not. And because the test is federal AGI, which includes the retirement income itself, a Roth conversion or the sale of a stock in a good year can push a retiree across the line and tax income that was exempt the year before.

The federal return and the Connecticut return measure different things here. The federal 1040 taxes up to 85% of Social Security and all of a pension, then softens the result with the standard deduction, the extra deduction for age and the $6,000 senior deduction enacted for 2025 through 2028. Connecticut ignores every one of those deductions, because they are taken below AGI, and instead removes the retirement income itself, in full or in part, by Schedule 1 subtraction. For a retiree under the line that is a far better deal. For one over it, Connecticut taxes the gross with no deduction at all beyond a personal exemption that is itself gone by $44,000 single or $71,000 joint of Connecticut AGI.

Social Security

Line 1 of Form CT-1040 picks up federal AGI, which already contains the federally taxable part of Social Security, somewhere between zero and 85% of the benefits. If federal AGI is under $75,000 (single, married filing separately) or $100,000 (joint, head of household, qualifying surviving spouse), the whole of that taxable amount comes back off on Schedule 1, Line 41, the Social Security benefit adjustment. Connecticut tax on the benefits is zero.

At or above those lines the Social Security Benefit Adjustment Worksheet in the instructions limits the Connecticut tax rather than removing it: the subtraction is set so that no more than 25% of total benefits received is taxed by Connecticut, against the 85% the federal return can reach. A couple receiving $40,000 of benefits with $127,000 of federal AGI has $34,000 taxed federally and $10,000 taxed by Connecticut. The thresholds are not indexed, and they are a cliff rather than a slope: one dollar of federal AGI over $100,000 moves a joint filer from 0% of benefits taxed to as much as 25%.

Pensions, 401(k)s and IRAs

Pension and annuity income, the amount on federal 1040 line 5b, is 100% subtracted when federal AGI is under $75,000 single, married filing separately or head of household, or $100,000 joint. Since 2024 the subtraction phases down rather than stopping at a cliff.

The table is from the Office of Legislative Research’s 2025 report and the statute it cites, CGS 12-701(a)(20)(B). The same schedule applies to IRA distributions. Note that a head of household uses the single column here but the $100,000 joint figure for Social Security.

Traditional IRA distributions, including SEP and SIMPLE IRAs and including the amount of a Roth conversion, reached 100% for tax year 2026. The subtraction was phased in: 25% of distributions in 2024, 75% in 2025, all of them from 2026. It is then limited by the same federal-AGI table as pensions. A single filer with $80,000 of federal AGI and $50,000 of IRA withdrawals in 2026 subtracts 55% of $50,000, or $27,500; in 2025 the same filer subtracted 55% of 75%, or $20,625. Qualified Roth withdrawals never appear, because they are not in federal AGI.

Several kinds of retirement pay are subtracted in full at any income: military retirement pay and survivor benefits, Railroad Retirement Tier 1 and Tier 2 benefits, and, for tax years beginning in 2026, retirement pay of the U.S. Public Health Service Commissioned Corps. A Connecticut Teachers’ Retirement System pension is 50% subtracted at any income, or the general pension subtraction if that is larger, but not both on the same dollars; a retired teacher with federal AGI under $100,000 joint takes the general subtraction and gets 100%.

Roth conversions and one-time gains

A Roth conversion is a taxable IRA distribution. For a Connecticut resident under the line it is subtracted like any other IRA withdrawal, and the state tax on it is zero. The problem is that the conversion is also in federal AGI, and federal AGI is the test. A couple with $84,000 of federal AGI who convert $40,000 land at $124,000, lose the full Social Security exemption, keep only 25% of the pension and IRA subtraction, and pay Connecticut tax on income that was exempt the year before. The same thing happens with the sale of appreciated stock, a lump-sum pension payout, the taxable part of an inherited IRA taken in one year, or a large capital gain distribution from a mutual fund. Capital gains are taxed as ordinary income here, at the same rates as wages, and they count toward the line like everything else.

The planning follows from the arithmetic. Convert in amounts that keep federal AGI under $100,000 joint or $75,000 single; spread a conversion over several years; take gains in a year when other income is low; and, once required minimum distributions begin, consider a qualified charitable distribution, which keeps the distribution out of federal AGI altogether and therefore off every Connecticut line. A retiree who has already crossed the top of the phase-out, $150,000 joint or $100,000 single, has nothing left to protect on the pension side and can convert freely as far as Connecticut is concerned, paying the bracket rate on the conversion and nothing more.

The federal senior deduction, and why it does not help here

The $6,000 federal deduction for each person 65 or older, in effect for 2025 through 2028, comes off after adjusted gross income. Form CT-1040 starts from AGI, so the deduction never reaches the Connecticut return; no add-back is needed because nothing was taken out. The same is true of the extra standard deduction for age. Connecticut’s own help for seniors is the retirement-income subtraction itself, which depends on income and not on age, and the property-tax programs below. There is no additional personal exemption for being 65.

Property-tax relief for seniors

One piece of property-tax relief is on the return: the credit on Schedule 3 for up to $300 of property tax paid to a Connecticut town on the primary residence or a motor vehicle, open to all ages since 2022, reduced above Connecticut AGI of $49,500 single or $70,500 joint. The rest is applied for at the town assessor’s office, and the income tests there count Social Security and all retirement income, whatever the income tax does with them.

The Circuit Breaker income limits are reset each year; the 2026 limits for applications filed in 2027 are to come. The 1967 state tax freeze is closed to new applicants.

Withholding and estimated payments

Pension and IRA payers withhold Connecticut tax only when the payee asks for it on Form CT-W4P. The 2024 rule requiring withholding on lump-sum distributions is suspended through December 31, 2026, as the Department’s 2026 withholding page says, and a 2026 act extends the suspension through 2027. A retiree whose federal AGI is safely under the line usually needs no Connecticut withholding at all. One who is over it, or who has brokerage income, rent or a gain to report, should either ask the payer to withhold or make estimated payments on Form CT-1040ES; the threshold is $1,000 of expected tax after withholding and credits, the safe harbor is 90% of this year’s tax or 100% of last year’s, and the interest on a shortfall is 1% a month.

Moving in, moving out

Federal law since 1996 bars any state from taxing the retirement income of someone who no longer lives there, so a pension earned elsewhere and paid to a new Connecticut resident is Connecticut’s to tax, under Connecticut’s rules, from the day of the move. A Connecticut pension paid to someone who has left is not taxed by Connecticut at all. In the year of the move, Form CT-1040NR/PY allocates each pension and IRA payment by where the taxpayer lived when it was received, and the subtractions apply to the Connecticut-period amounts; whether the $75,000 and $100,000 tests use full-year federal AGI or the Connecticut-period figure should be confirmed with the instructions (verify). The residency rules are in Moving to Connecticut.

The estate and gift tax

Connecticut has an estate tax and a gift tax, the only state gift tax in the country, and no inheritance tax. For deaths and gifts in 2026 the exemption is $15,000,000, matching the federal basic exclusion amount, and the tax is a flat 12% of the taxable estate or cumulative lifetime taxable gifts above it, with total estate and gift tax capped at $15 million. Very few estates pay. Every estate files something, though: an estate at or under the exemption files Form CT-706 NT with the Probate Court, not the Department, and a Connecticut gift tax return is required for any year with taxable gifts, even when no tax is due. The 2027 exemption follows the federal figure and is to come. See Gift and estate taxes.