By: Robert Vieira
With all the talk of the Federal tax law changes, the Connecticut tax laws have taken a back seat. After finally passing a budget in October, several tax changes were passed. Some will take effect retroactively to July 1, 2017 while others will go into effect in 2018 and 2019. Here are some of the highlights:
Fresh Start Program – Anyone who has been following the local news knows that Connecticut is in a budget crisis. One way the state is trying to look for lost revenue is through a program developed called the Fresh Start Program (the “FSP”). The FSP is running through November 30, 2018. It is available for any “qualified taxpayer” who has failed to file a tax return or failed to report the correct amount of tax due on a previously filed tax return. The tax returns being accepted in the FSP were due on or before December 31, 2016, although officials from the CTDOR stated they are trying to push that date further out. The incentives they are offering include no penalties, payment of only 50% of the interest owed, a limited look-back period of three years for taxpayers who are unregistered and have never filed, and no criminal prosecution. A “Qualified Taxpayer” is a taxpayer who voluntarily comes forward and files an application to take part in the FSP for any specific Connecticut tax type before the taxpayer receives a notice of audit, not filing a tax return, or failure to pay taxes.
There are a variety of tax types you can use the FSP for which are not limited to Income Tax. They include Individual, Partnership, S-corporation, LLCs, Estates and Trusts, Sales and Use Tax, Corporation Tax, Withholding Tax, Gift Tax, and the Business Entity Tax.
In taking part in the FSP, you agree to 1) voluntarily and fully divulge facts relevant to the tax liability, 2) file any and all tax returns required by the CTDOR, 3) pay in full the tax and portion of the interest due (the CTDOR will not accept any type of payment plan), 4) agree to timely file all tax returns and taxes due for a period of three years after the agreement is signed, and 5) waive all rights of an appeal for the relevant tax periods. Keep in mind this is strictly a voluntary program. If you feel you qualify for this program, it is highly recommended you take advantage of this program before it is too late. The state has been sending out courtesy letters to notify taxpayers that they have been flagged for possibly not filing a return or paying taxes owed. If you receive a letter like this, it is the state giving you a chance to take advantage of the FSP before they send you an official letter. Once you receive an official letter of tax delinquency or failure to file, you will be disqualified from partaking in the FSP.
Pension and Annuity Payments – Effective January 1, 2018, if you receive a distribution from a pension plan, annuity, individual retirement account, an endowment, and/or life insurance policy, the financial institution that pays the distribution will now be required to withhold Connecticut income tax. You should have received a Form CT-W4P, which you had to fill out and send back to your Payer by January 1, 2018. If you did not do so, they are required to withhold the highest rate of 6.99%. If you normally pay Connecticut estimated taxes, this new withholding requirement may affect how much your payments will be, if any.
Corporation Business Tax Return Due Date – Starting for 2017 tax returns, the due date has been changed due to a prior change in the federal due date. The Connecticut Business Tax Return is due on or before the 15th day of the following month of the federal tax return. Therefore, if your federal corporate tax return is due April 15th, your Connecticut tax return due date will be May 15th.
Property Tax Credit – For tax years 2017 and 2018, the Connecticut Property Tax Credit has changed. It is now available only if you are at the age of 65 or over by the end of the applicable tax year or if you claim one or more dependents on your tax return.
Sales Tax Permits – For any permit issued on or after October 1, 2017, the effective period was reduced from every five years to every two years.
Estate and Gift Tax Exemptions – The Connecticut estate and gift tax exemptions will be increased over the next three years from the current $2 million to align with the federal exemption amount. The state exemption increases to $2.6 million in 2018, $3.6 million in 2019, and the federal exemption in 2020 and thereafter. The estate and gift tax cap will also be reduced from $20 million to $15 million on the maximum combined Connecticut gift and estate tax payable for the estates of decedents dying after January 1, 2019.
The above are just a few of the notable changes that came with the new budget. If you feel any of these changes may affect you, or you would like to discuss tax planning, please contact us at 203-929-3535.