Connecticut State Department of Revenue Services

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2025 Legislative Overview - Income Tax

 

2025 Regular Session of the Connecticut General Assembly

Overview of Legislation

Income Tax

Income Tax:

  • Expansion of Earned Income Tax Credit (EITC): Under this legislation, any taxpayer who is eligible for an EITC in a given taxable year and who has at least one qualifying child for federal income tax purposes in said taxable year is eligible to receive an additional two hundred fifty dollars ($250).  Said amount will be in addition to the amount of the EITC the taxpayer is otherwise eligible to receive under Conn. Gen. Stat. § 12-704c in the applicable taxable year. The legislation is effective from passage and applicable to taxable years commencing on or after January 1, 2025.
  • Establishment of a Credit for Family Child Care Home Owners: Legislation establishes a credit for any taxpayer who owns a “family child care home” (which term is defined in Conn. Gen. Stat. § 19a-77) and is licensed under Conn. Gen. Stat. § 19a-87b.  The credit, which can be claimed against the tax imposed under chapter 229 (other than the liability imposed by Conn. Gen. Stat. § 12-707), is equal to five hundred dollars ($500) per “family child care home.”  Note: If this credit exceeds the eligible taxpayer’s income tax liability in a given taxable year, the excess amount is treated as an overpayment and is to be refunded without interest. The legislation is effective January 1, 2026, and applicable to income and taxable years commencing on or after January 1, 2026.
  • Establishment of a Farm Investment Tax Credit: Legislation establishes a credit that is based on farmers’ investments in eligible machinery, equipment, and buildings.  The credit, which can be claimed against the tax imposed under chapter 208 or 229 (other than the liability imposed by Conn. Gen. Stat. § 12-707), is equal to twenty per cent (20%) of the amount paid or incurred during an income or a taxable year for farm investment property by a taxpayer that is an eligible farmer. Note: If this credit exceeds the farmer’s tax liability in a given income or taxable year, the excess amount is treated as an overpayment and is to be refunded without interest. The legislation is effective January 1, 2026, and applicable to income and taxable years commencing on or after January 1, 2026.
  • Establishment of a Connecticut Higher Education Trust (CHET) Contribution Tax Credit: Legislation establishes a credit for contributions employers make to a qualifying employee’s CHET account.  The credit, which can be claimed against the tax imposed under chapters 207, 208 or 229 (other than the liability imposed by Conn. Gen. Stat. § 12-707), is equal to twenty-five per cent (25%) of the employer’s contribution and is capped at $500 per employee per income or taxable year. The legislation is effective July 1, 2025, and applicable to income and taxable years commencing on or after January 1, 2025. 
  • Modification to Accounts to which Taxpayers can contribute Income Tax Refunds: Legislation modified Conn. Gen. Stat. § 12-743 so as to eliminate the CHET Baby Scholars Fund as an account to which taxpayers can contribute all or a portion of their income tax refunds and added language so as to allow taxpayers to contribute such refunds or portions thereof to the Connecticut Baby Bond Trust.The legislation is effective January 1, 2025.
  • Establishment of a Tax Credit administered by the University of Connecticut (UConn): Legislation authorizes UConn to set up and administer a tax credit incentive program to promote and publicly recognize the university and its programs, services, and mission. The credit is based upon payments made by a taxpayer in a taxable or an income year pursuant to a “qualified agreement.” The credit is equal to fifty per cent (50%) of the payments made under such an agreement and shall not exceed five hundred thousand dollars for any taxpayer for any taxable or income year. The aggregate amount of the credits allowed under this section shall not exceed five million dollars in any calendar year. The credit can be claimed against the tax imposed under chapters 207, 208, 209, 210, 211, 212, 228z or 229 (other than the liability imposed by Conn. Gen. Stat. § 12-707) and unused amounts may be carried forward for fifteen (15) years until they are fully taken. Note: This credit is not subject to provisions of Conn. Gen. Stat. § 12-217zz, which place limits on the use of tax credits. The legislation is effective upon passage and applicable to income and taxable years commencing on or after January 1, 2025.
  • Modification to Withholding requirements relative to pension and annuity distributions: Legislation modified Conn. Gen. Stat. § 12-705, so as to suspend the income tax withholding requirement on “lump sum distributions” from certain accounts that was enacted by the General Assembly in 2024.Under the legislation, said requirement is suspended from July 1, 2025, through December 31, 2026. However, said legislation does require payers of “lump sum distributions” to continue to withhold taxes from these distributions if the payee has requested withholding. The legislation is effective July 1, 2025.
  • Establishment of Credit for Taxpayers who successfully challenge the application of another state’s “convenience of the employer” rule: Legislation allows any Connecticut resident who is subject to and successfully challenges the application of another state’s “convenience of the employer” rule a credit against the tax imposed under chapter 229 (other than the liability imposed by Conn. Gen. Stat. § 12-707) equal to sixty per cent (60%) of the amount of taxes said resident owes to Connecticut as a result of the readjustment to the credit for taxes paid under Conn. Gen. Stat. § 12-704 that stems from said resident’s successful challenge. The legislation is effective upon passage.