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Bulletin #18

Taxpayers Information Service
Capital Gains, Dividends and Interest Income Tax

This Bulletin is superseded by PS 92-3

The Connecticut General Assembly recently amended the statutes concerning the taxation of capital gain income. These changes are effective for income years beginning on or after January 1, 1987. Because Long-Term Capital Gains are now reported at 100% on the Individual Federal Income Tax Return, a 60% deduction will be allowed for gains on sales or exchanges of capital assets held over 6 months on the CONNECTICUT TAX RETURN. This adjustment will be calculated on the schedule provided.

P.A. 87-84 reduces the penalty for late filing to 10% of the amount of tax due on Capital Gains, Dividends and Interest Income. There is no $50 minimum penalty. This change was effective July 1, 1987 and applies to all returns filed on or after that date.

A resident may be subject to a tax on the gains from the sale or exchange of capital assets irrespective of the amount of the Federal Adjusted Gross Income. The tax rate remains 7%. Taxpayers 65 years of age or older whose Federal Adjusted Gross Income exclusive of Social Security, Tier 1 Railroad Retirement and Capital Gain is less than $10,000 will not be subject to the tax and need not file a return. A taxpayer whose Federal Adjusted Gross Income is below the amount required to file a Federal Form 1040 need not file or pay the Capital Gains, Dividends and Interest Income Tax.

A Connecticut resident will be subject to the tax on dividend and interest income when the Connecticut Adjusted Gross Income is $54,000 or more. Connecticut Adjusted Gross Income means Federal Adjusted Gross Income minus any portion of Social Security benefits and Tier 1 Railroad Retirement benefits included in the Federal Adjusted Gross Income.

CONNECTICUT CONNECTICUT
ADJUSTED GROSS INCOME ADJUSTED GROSS INCOME
At Least But Less Than Rate At Least But Less Than Rate
$54,000 $58,000 1% $78,000 $82,000 7%
$58,000 $62,000 2% $82,000 $86,000 8%
$62,000 $66,000 3% $86,000 $90,000 9%
$66,000 $70,000 4% $90,000 $100,000 11%
$70,000 $74,000 5% $100,000 AND OVER 12%
$74,000 $78,000 6%

For state tax purposes, married residents will be required to file a joint return if they file a joint Federal Income Tax Return. If separate returns are filed for Federal Income Tax purposes, they must also file separate returns for state taxes.

A declaration of estimated tax is required to be filed on or before the 15th day of the 6th month of the tax year by a resident whose tax liability attributable to dividend and interest income exceeds $200 and whose Connecticut Adjusted Gross Income is $54,000 or more. This estimate may be amended by the 15th day of the 12th month of the tax year. A completed return must be filed to claim a refund even if no tax is due.

A taxpayer will deduct from the interest income reported on his or her Federal Income Tax Return, any interest income received from direct obligations of the federal government including bonds of Puerto Rico and Guam. Interest income received directly or through a fund from obligations of states and municipalities other than Connecticut must be added to the amount reported. Penalties for early withdrawal of CDs, IRAs, etc. are deductible from interest income. The rate of tax on the sum of dividend and interest income will depend on the resident's Connecticut Adjusted Gross Income.

No deduction attributable to expenses incurred in generating dividend and interest income will be allowed in computing dividend and interest income.

The tax must be paid on the distributable share of gross dividends and interest income received from partnerships, corporations or other entities which are not reported on Schedule B, Form 1040 but are reported on Form 1040.