Connecticut introduces pension income tax reduction plan for low-income residents

On March 24, 2025, the Connecticut State Legislature introduced House Bill 6876, a significant piece of legislation aimed at reforming the taxation of pension and annuity income for residents. This bill seeks to alleviate the financial burden on retirees by gradually increasing the percentage of pension income exempt from state taxes, thereby addressing concerns about the affordability of living for older citizens.

The bill outlines a structured schedule for tax deductions based on federal adjusted gross income (AGI). For individuals earning less than $75,000, the bill proposes a full exemption of 100% on pension income starting in the 2024 tax year. As income levels rise, the exemption percentage decreases incrementally, with those earning between $75,000 and $89,999 receiving partial deductions ranging from 85% to 10%. This tiered approach is designed to provide relief to lower and middle-income retirees while still generating revenue from higher earners.

Debate surrounding House Bill 6876 has been notable, with proponents arguing that the bill is essential for supporting Connecticut's aging population, many of whom rely heavily on fixed incomes. Critics, however, express concerns about the potential impact on state revenue, fearing that the tax cuts could lead to budget shortfalls that might affect funding for essential services.

The implications of this bill extend beyond individual financial relief. Economically, it could encourage retirees to remain in Connecticut, potentially boosting local economies as they spend their disposable income. Socially, the bill addresses the growing issue of financial insecurity among seniors, a demographic that has faced increasing challenges in recent years due to rising living costs.

As the legislative process continues, experts suggest that the bill's success will depend on balancing the needs of retirees with the state's fiscal responsibilities. If passed, House Bill 6876 could set a precedent for similar tax reforms in other states, reflecting a broader trend toward supporting aging populations in an increasingly challenging economic landscape. The next steps will involve further discussions and potential amendments as lawmakers weigh the benefits against the fiscal implications for Connecticut's future.