Legislature proposes graduated tax deductions for pension income starting 2024

On February 27, 2025, the Connecticut State Legislature introduced Senate Bill 1401, a significant piece of legislation aimed at reforming tax deductions for pension and annuity income. The bill proposes a structured schedule of deductions for married individuals filing jointly, contingent on their federal adjusted gross income (AGI).

The primary objective of Senate Bill 1401 is to alleviate the tax burden on lower- and middle-income retirees by allowing a percentage of pension and annuity income to be deducted from taxable income. Under the proposed schedule, individuals with a federal AGI of less than $100,000 would receive a full deduction of 100%, while those earning between $100,000 and $149,999 would see their deductions gradually decrease to 2.5%. This tiered approach aims to provide substantial tax relief to those most in need, while phasing out benefits for higher earners.

In addition to pension tax relief, the bill includes provisions for taxpayers who incur expenses related to organ donation, allowing deductions for lost wages and medical costs up to $10,000. It also addresses financial assistance received from the Crumbling Foundations Assistance Fund, ensuring that such assistance is not counted as taxable income.

The introduction of Senate Bill 1401 has sparked notable discussions among lawmakers. Proponents argue that the bill is a necessary step to support retirees and encourage organ donation, while critics express concerns about the potential impact on state revenue and the fairness of the income thresholds. Amendments to the bill may be proposed as debates continue, particularly regarding the income limits and the overall fiscal implications.

Economically, the bill could have significant implications for Connecticut's retirees, potentially increasing disposable income for many households. Socially, it may encourage more individuals to consider organ donation, knowing that they can receive financial support for associated costs.

As the legislative process unfolds, stakeholders will be closely monitoring the bill's progress, with potential outcomes ranging from amendments that could broaden its scope to outright rejection based on fiscal concerns. The next steps will involve committee reviews and discussions, setting the stage for further debate in the coming weeks.