Connecticut State Income Tax for 2011, 2012

Before 1991, the Connecticut State Income Tax system relied on an investment-only income tax system. Instead of having a tax on people’s income, this tax system instead taxed only investments as the name implies. Investments in Connecticut were taxed at a rate of 13%, which was the highest rate in the country, and it had to be since they weren’t taxing income. Also, no deductions were allowed for things like interest on borrowing or any of the costs of investment.

When Lowell P. Weicker, Jr., was the Connecticut governor in 1991, employment income was finally taxed as well. Both investment income and employment income were then taxed at a maximum rate of 4%. Greenwich, Connecticut subsequently became a hotspot for many of the largest hedge funds in the country.

As of 2011, the Connecticut Income tax rate for individuals in Connecticut have been divided into six brackets based on income levels: 3%, 5%, 5.5%, 6%, 6.5%, and 6.7%. Even if a Connecticut resident earns income outside the state, all his/her wages are subject to the Connecticut State Income Tax. Connecticut tax in those cases, however, must be withheld to the extend that tax is withheld in whatever jurisdiction that person is garnishing wages from.

Connecticut residents that work in New York or Massachusetts, for example, are working in states with higher tax rates than Connecticut. That means the residents who work in that state have no Connecticut State Income Tax withheld. It’s also allowed for these residents to take a tax credit for taxes paid to other jurisdictions, but they’re still subject to Connecticut taxation, so they may still owe taxes if their Connecticut taxes aren’t fully offset by the taxes in their working jurisdiction.

There is a 6.35% state sales tax in Connecticut on the retail sale of most goods, including rental and lease. There are some exception for what items are taxable though. There was a provision that excluded clothes that cost under $50 from being taxed, but it was repealed as of July1, 2011. There are no local sales taxes imposed. Also, there is a week during the summer where there are no taxes on specific items to help parents with children returning to school.